Buying a Home in Ontario? Don’t Forget About These Closing Costs
When you're buying a home, it's easy to focus on two numbers: the purchase price and your down payment.
But the down payment isn't the only money you'll need.
Ontario home buyers should also budget for a number of closing costs and other expenses that can arise before and on closing day. CMHC recommends planning for closing costs of approximately 1.5% to 4% of the purchase price, depending on the property and transaction.
Understanding these expenses ahead of time can help prevent unpleasant surprises.
Here are some of the most common costs Ontario buyers should consider.
1. Ontario Land Transfer Tax
For many buyers, Land Transfer Tax (LTT) is one of the largest closing costs.
Ontario's provincial land transfer tax is calculated based on the purchase price of the property.
The amount increases progressively as the purchase price increases, so someone purchasing a $900,000 home will pay considerably more land transfer tax than someone purchasing a $400,000 home.
First-Time Home Buyers May Qualify for a Rebate
Eligible first-time home buyers may qualify for an Ontario land transfer tax refund, which can substantially reduce this expense.
If you're buying your first home, make sure you discuss eligibility with your lawyer rather than assuming you'll have to pay the full amount.
2. Legal Fees and Disbursements
You'll normally need a real estate lawyer to complete your Ontario home purchase.
Your lawyer handles important aspects of the transaction, including reviewing documents, conducting title searches, arranging the transfer of ownership, dealing with your mortgage lender and registering the property.
In addition to the lawyer's professional fee, there can be disbursements and registration-related expenses.
Because fees vary by transaction and law firm, it's worth requesting an estimate from your lawyer ahead of closing.
CMHC specifically identifies legal fees, disbursements and land-registration expenses among the costs buyers should budget for.
3. Title Insurance
Title insurance is commonly obtained as part of an Ontario real estate transaction.
It can provide protection against certain title-related problems, depending on the policy.
Your lawyer can explain the coverage, cost and whether title insurance is appropriate for your particular purchase.
4. Home Inspection
Although a home inspection isn't technically a closing cost paid to your lawyer, it's an expense buyers should include in their overall purchasing budget.
A professional inspection can help identify visible concerns involving components such as:
- Roof
- Foundation
- Electrical system
- Plumbing
- Heating and cooling
- Windows
- Insulation
- Moisture
- Structural components
Depending on the property, buyers might also consider specialized inspections or testing.
The relatively small cost of an inspection can provide valuable information when you're considering a purchase worth hundreds of thousands of dollars.
5. Property Tax and Utility Adjustments
This one can catch buyers by surprise.
The seller may have already paid certain expenses beyond the closing date.
For example, if property taxes have been prepaid, the buyer may need to reimburse the seller for the portion covering the period after the buyer takes ownership.
Similar adjustments can sometimes apply to other expenses.
These amounts are generally calculated by the lawyers as part of the closing process.
CMHC includes prepaid property taxes and utility adjustments among the potential up-front expenses buyers should anticipate.
6. Mortgage Appraisal Fee
Depending on your lender and mortgage, an appraisal may be required.
The lender wants to ensure the property provides adequate security for the mortgage.
Sometimes the lender absorbs the appraisal expense. In other situations, the buyer may be responsible for it.
Ask your mortgage broker or lender whether an appraisal is required and who will pay for it.
7. Mortgage Default Insurance
If your down payment is below the threshold required for a conventional mortgage, you may require mortgage default insurance.
The premium is generally added to the mortgage rather than paid entirely in cash at closing, but buyers should still understand how it affects the total amount being financed.
Your mortgage professional can explain whether insurance is required and how much it will add to your mortgage.
8. Home Insurance
Your lender will generally require appropriate property insurance to be in place before advancing mortgage funds.
That means you'll need to arrange insurance before closing.
Don't wait until the last minute.
Insurance companies may ask questions about the home's:
- Age
- Roof
- Electrical system
- Plumbing
- Heating system
- Wood-burning appliances
- Previous claims
- Other property characteristics
Older or unusual properties can sometimes require additional investigation before coverage is approved.
9. Condominium-Related Costs
Buying a condo can involve some expenses that don't necessarily apply to a freehold home.
For example, buyers may need to consider costs associated with reviewing the condominium corporation's documents and other condo-related matters.
If you're buying a condominium, it's particularly important to have your Realtor and lawyer explain what should be reviewed before you commit to the purchase.
10. Moving and Immediate Homeownership Expenses
Not every expense appears on your lawyer's statement of adjustments.
Don't forget about the money you may need immediately after purchasing.
That could include:
- Movers
- Utility connections
- Locks
- Appliances
- Furniture
- Window coverings
- Painting
- Minor repairs
- Landscaping
- Immediate renovations
Keeping some cash available after closing rather than putting every available dollar into your down payment can make the transition to homeownership considerably easier.
What About Realtor Fees When You're Buying?
This is an important area where buyers should understand exactly how compensation works.
You'll often hear that “using a Realtor is free for buyers.”
In many traditional resale transactions, the seller agrees to provide an amount that covers the buyer's brokerage fees, meaning the buyer may not have to pay their Realtor's fee separately out of pocket.
However, under Ontario's current real estate rules, it isn't accurate to say that buyer representation is always automatically free.
Your Buyer Representation Agreement must clearly explain the remuneration payable to your brokerage and what happens if the seller agrees to cover all, some or none of those fees. RECO specifically notes that a seller may not offer enough—or may offer nothing—to cover the amount a buyer has agreed to pay their brokerage.
So What Does This Mean for TrinityStone Realty Buyers?
In transactions where the seller provides sufficient compensation to cover the buyer's agreed brokerage fee, the buyer does not pay an additional Realtor fee out of pocket for TrinityStone Realty's buyer representation.
If a seller isn't providing sufficient compensation, that should be discussed before you make an offer, so you understand your options and any potential financial obligation.
In some circumstances, the buyer and seller can also negotiate a term in the Agreement of Purchase and Sale under which the seller compensates the buyer for some or all of the buyer's brokerage fees. RECO specifically provides guidance for this type of arrangement.
That's an important distinction—and one buyers should understand before signing a representation agreement.
Why Use Your Own Realtor When Buying?
Finding listings online is easy.
Knowing whether you're making a good real estate decision is another matter.
A buyer's Realtor can help you:
- Find suitable properties
- Arrange and attend showings
- Research comparable sales
- Evaluate asking prices
- Understand neighbourhoods
- Identify potential concerns
- Develop an offer strategy
- Prepare the Agreement of Purchase and Sale
- Recommend appropriate conditions
- Negotiate price and terms
- Coordinate with your mortgage professional and lawyer
- Guide you from your initial search through closing
Most importantly, when you're represented as a buyer client, you have a real estate professional whose responsibility is to represent your interests in the transaction.
Know Your Total Budget Before You Start Shopping
If you're approved to purchase a $700,000 home, that doesn't necessarily mean you should spend every available dollar on the purchase price and down payment.
Before shopping, consider your complete financial picture:
Down payment + closing costs + moving expenses + immediate home expenses + emergency savings.
CMHC specifically recommends considering the total cost of purchasing a home rather than focusing solely on the purchase price.
Being prepared makes the buying process considerably less stressful.
Thinking About Buying in Stittsville, Kanata or Ottawa?
At TrinityStone Realty, our experienced local Realtors help buyers understand the entire purchasing process—not simply find properties online.
We'll help you understand market values, compare homes, develop an offer strategy and know what expenses to anticipate before you make a commitment.
Whether you're a first-time buyer, moving to your next home, downsizing or purchasing an investment property, we're here to help you make an informed decision.
Thinking about buying? Talk to TrinityStone Realty before you start shopping.
TrinityStone Realty
Stittsville, Ontario
613-417-3599
TrinityStoneRealty.com
Your trusted local real estate experts serving Stittsville, Kanata, Ottawa and surrounding communities.
This article provides general information only. Closing costs and eligibility for rebates or programs vary. Buyers should obtain advice specific to their transaction from their lawyer, mortgage professional and other appropriate professionals.