As if the mortgage when you purchase a property in Toronto isn't enough, there are a slew of other costs that you'll have to cover before you get the keys to your new abode.
These costs are required before closing and generally add up to anywhere between 2 per cent to 5 per cent of the purchase price of the home you buy.
That's why it's so important to budget and save for these closing costs well in advance, ensuring you've got enough to cover everything before the deal is sealed.
So, what closing costs can you expect to pay when you purchase a home in Toronto?
Land Transfer Taxes
When you purchase real estate in Toronto, Land Transfer Taxes will have to be paid. In most centres across Canada, buyers are usually only required to pay provincial Land Transfer Taxes. But in some cities - including Toronto - municipal Land Transfer Taxes are also required. That means buyers in Toronto essentially pay double in this department.
The amount paid is based on a percentage of the purchase price of the home. There is a specific calculation that is applied for each type of Land Transfer Tax, but you can expect to pay approximately 1.5 per cent to 2 per cent of the purchase price of the home for each.
If you're a first-time homebuyer, you may be eligible for a full or partial tax refund to help recoup these costs.
It helps to have a lawyer close a real estate transaction, as they'll ensure that the contract is a sound one and the transaction lawful. If you're buying a condo, they'll also help you navigate the Status Certificate documents that will tell you about the health of the condo corporation. But lawyers charge for their services, and when it comes to real estate transactions, you can expect to pay anywhere between $1,000, to $3,000, depending on the complexities of the transaction.
Buyers are encouraged to include a condition in their real estate contracts that allows them the opportunity to have the home inspected by a professional before the deal is done. That way, if there are any major issues with the property, they can be addressed appropriately before closing. Home inspection costs vary depending on the size and condition of the home, but they typically run around $500.
Before your mortgage lender agrees to lend you money to finance your home purchase, the value of the home in question will need to be assessed. Lenders want to ensure that the price agreed to be paid is at par with its actual market value.
If the home is appraised at a value significantly lower than the purchase price, there could be a problem with mortgage approval. Lenders appoint an appraiser to establish the value of a home, which can cost around $300 to $500.
Mortgage Default Insurance
A down payment of less than 20 per cent of the purchase price of the home will require you to pay mortgage default insurance, which is a policy paid by the borrower but meant to protect the lender. The idea is that a lower down payment means a higher loan amount relative to the value of the property, which places more risk on the lender.
To offset this risk, mortgage default insurance is required. It's usually rolled into the mortgage payments but can also be paid upfront at closing. The amount paid varies greatly depending on the cost of the home and loan-to-value ratio, but it can range between 1 per cent to 5 per cent of the loan amount.
There are several costs associated with homeownership that the seller may have already covered but need to be reimbursed, if prepaid after closing. For instance, property taxes, utilities, and property insurance may have been paid up to year-end, but the closing date may occur a few months before that. In this case, adjustments will be made to reimburse the seller what has already been paid.
If you're buying new home construction, you'll be subject to paying HST on the purchase price of the home. This can either be paid upfront on closing day or rolled into your mortgage. That said, builders often include HST in the final purchase price, so it would then be part of the mortgage. The good news is that you may be eligible for an HST rebate, depending on the purchase price of your home.
Tarion Warranty Fees
Again, this type of fee is only associated with new home construction. A Tarion Warranty protects home buyers of new home construction by ensuring that builders comply with provincial legislation. Depending on the price of the home, the fee for this warranty will vary from $385 to over $2,000.
Having the title of the property searched before you seal the deal is important to make sure there are no issues with the title before it's transferred to you. With title insurance, you'll be protected against any potential losses related to a clouded title. This can cost around $250 to $400, but it's sometimes included in lawyer fees.
As you can see, the list of closing costs when you buy a home in Toronto can be pretty lengthy, and the fees can really add up. Make sure you are familiar with the exact closing costs associated with your transaction and save up enough to cover them come closing time.