When buying a home, it is easy to focus on the purchase price and mortgage. But the amount you need to have available on closing day can be higher than the purchase price alone.
Whether you are buying a condominium, house, townhouse or another type of residential property in Toronto or elsewhere in Ontario, understanding your closing costs in advance can help you avoid surprises.
Here are some of the common costs buyers should consider.
Land Transfer Tax
One of the largest additional expenses for many homebuyers is Land Transfer Tax.
Ontario Land Transfer Tax is generally payable when you acquire an interest in land. The amount depends on the purchase price and the applicable tax rates.
If you are purchasing a property in Toronto, you may also be required to pay the City of Toronto Municipal Land Transfer Tax.
This means that a Toronto buyer can have both provincial and municipal Land Transfer Tax payable on the same transaction.
The amount can be significant, so it is important to understand your potential Land Transfer Tax liability before you finalize your purchase.
First-Time Homebuyer Rebates
If you are a first-time homebuyer, you may qualify for a Land Transfer Tax refund.
Ontario’s first-time homebuyer refund is subject to specific eligibility requirements. For example, generally, you must be at least 18 years old and cannot have previously owned a home or an interest in a home anywhere in the world. Your spouse’s previous ownership can also affect eligibility.
If you are buying your first home, it is important to discuss your eligibility with your lawyer before closing.
Legal Fees and Disbursements
Your lawyer’s legal fee is another cost to consider.
In addition to the legal fee, there are usually various disbursements associated with completing a real estate transaction. These can include registration costs, title searches, electronic registration charges and other expenses depending on the transaction.
The exact amount will vary depending on the property and the circumstances of the purchase.
Title Insurance
Title insurance is commonly used in residential real estate transactions in Ontario.
It can provide coverage for certain title-related risks and other matters covered by the particular policy. Your lawyer can explain the title insurance policy applicable to your transaction and the coverage it provides.
The cost of title insurance is generally a one-time closing expense rather than an ongoing monthly expense.
Adjustments on Closing
Another important item is the Statement of Adjustments.
The purchase price is not necessarily the final amount that the buyer will be required to provide on closing.
There may be adjustments for items such as property taxes, condominium fees, prepaid expenses or other amounts that have been paid by one party but relate to a period after closing.
For example, if a seller has already paid property taxes covering a period that extends beyond the closing date, an appropriate adjustment may be made in favour of the seller.
Your lawyer will review the adjustments and calculate the amount applicable to your transaction.
Mortgage-Related Costs
If you are obtaining a mortgage, there may also be costs associated with your financing.
Your lender may require an appraisal, insurance documentation or other items before mortgage funds can be advanced. Depending on your mortgage and lender, there may also be registration-related costs.
It is important to make sure your lawyer receives the lender’s instructions and all required documentation well before closing.
Don’t Forget About Your Closing Funds
One of the most important things a buyer can do is make sure the required closing funds are available on time.
Your lawyer will provide you with the amount required to complete the transaction once the purchase price, mortgage funds, adjustments and applicable closing costs have been calculated.
Do not wait until the last minute to arrange your funds. Bank processing times and other issues can sometimes create unnecessary delays.
Plan for the Full Cost of Your Purchase
Buying a home is a significant financial commitment. The purchase price is only one part of the overall cost.
Before making a purchase, buyers should consider Land Transfer Tax, legal fees, disbursements, title insurance, adjustments and other costs that may apply to their particular transaction.
Planning ahead can make the closing process much smoother and help you avoid an unexpected financial shortfall when it is time to close.
If you are buying or selling a home in Toronto or elsewhere in Ontario and have questions about the legal side of your transaction, I would be happy to discuss the process and the steps required for closing.
Eran Gevantschniter, Barrister & Solicitor
The Law Offices of Eran Gevantschniter
416.777.6788
eran@eranlaw.com
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