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Real Estate and Business

Costs Associated With Buying a Home in Toronto (Closing Costs & After Closing Costs)

Closing costs for the purchase of residential real estate in Toronto can be as much as 4% of the selling price plus after-closing costs. They are comprised of legal, administrative and related costs. In addition, there are other payments that may be required before, on or after the property closes. Knowing what to expect will help you plan and avoid complication.

Cash Requirements Before Your Mortgage is Finalized

Deposit – A deposit is usually provided either with the Offer to Purchase, within 24 hours of the offer being signed by the seller, or by an agreed upon date. This payment counts constitutes part of your down payment. The deposit ideally amounts to 5% of the purchase price, which is the minimum down payment percentage in Canada for financial institution financing. It is possible to put a smaller deposit down. However, in a seller’s market, you usually see more significant deposits.

Home Inspection Fee – It is highly recommended that you obtain a home inspection report from a qualified and certified home inspector as a condition of your Offer to Purchase. However, in a seller’s market with multiple bidders on the property, it is not uncommon to purchase the home without a home inspection condition. Home inspections can range from as little as $300 for condo units to as much as $1000 or more for executive homes of 4,200 square feet or larger. There is also significant variation in price among home inspection companies and the complexity of the inspection.

Costs Financed Through Your Mortgage

Mortgage default insurance/CMHC insurance – in cases where you purchase a house with less than a 20% down payment, you may need to get a third party such as the Canada Mortgage and Housing Corporation to insure your mortgage with the bank. This is called ‘mortgage default insurance’ and it protects the lender in the event that the borrower defaults on the mortgage loan. You are not required to pay for this in cash, but rather it is included in your mortgage amount and amortized over the life of the mortgage. In other words, your mortgage payments will be higher.

Required Closing Costs Paid By The Buyer

Land Transfer Tax – A tax charged by the province and sometimes also by a city based on the purchase price of your home. This Land Transfer Tax (LTT) is payable on closing. The City of Toronto provides this online Land Transfer Tax calculator to help you determine the Ontario and Toronto land transfer tax.

Legal Fees and Disbursements – Lawyer fees will be at least $500 (plus GST/HST) for the preparation and recording of official documents. If you need help finding a Toronto real estate lawyer, I can provide a list of several.

Title Insurance – Most lenders now require title insurance to cover losses resulting from unexpected property ownership disputes. This insurance generally costs $100-$300 and is purchased through your lawyer/notary public.

Provincial Sales Tax (PST) on CMHC Insurance – Though CMHC insurance itself is financed through the mortgage, PST on the insurance must be paid in cash at the time of close.

Some Closing Costs That Are Sometimes Incurred By Home Buyers Depending On The Property

Water Tests – If the home uses a well, you will want to test the supply and quality of the water to make sure there is enough and it is drinkable. These costs may be a negotiation point with the seller and detailed in the Offer to Purchase.

Septic tank – If the property uses a septic tank, it should be tested to ensure it is in good working order. This cost and any repair costs may be negotiated with the seller and detailed as part of the Offer to Purchase.

Estoppel Certificate/Status Certificate Fee – When buying a strata or condominium unit, it is important to obtain what is commonly known as a status certificate. The cost is usually $100 (or more if you need it quickly) payable to the property management company or corporation.

Mandatory Closing Costs Usually Covered By The Lender

Appraisal Fee – The lender, especially if it’s a major financial institution, will request an appraisal to estimate the market value of the property you are purchasing. The lender’s concern is what they can sell the home for in the event that you default on the load. The fee which is an upwards of $250 is  often covered by the lender.

Other costs

Prepaid Utility Bill – You may need to reimburse the seller for prepaid costs such as property taxes, utilities and so forth according to the terms of the Offer of Purchase.

Property taxes – Property taxes are based on percentage rate determined by the city and applied to the assessed market value of your property. In 2016 the City of Toronto residential property tax rate is 0.6879731%, amounting to $3,439.87 on a property assessed at $500,000. You may need to reimburse the seller if he/she has already paid property taxes for the full year. You also have the option to set-up an automatic payment plan through your lender, who will collect monthly instalments  and then pay property taxes on your behalf. You can calculate your property taxes with this online property tax calculator.

Property Insurance – Property insurance for the replacement cost of your home and its contents is required to be in place on closing day. Usually, you have the option to pay the insurance premium on a monthly or annual basis.

Closing Day

On closing Day is the day you take legal possession of your home. It’s important that you have most of the paperwork completed by then, which includes transferring your down payment to your lawyer. If you are transferring funds from restricted accounts, such as an RRSP or from outside the country, you want to start the process in adequate time.

On closing day:

– Your lender will provide the mortgage funds to your lawyer or notary public.

– You must provide your down payment, less the deposit, to your lawyer or notary public, along with the closing costs.

– Your lawyer or notary pays the seller, registers the home in your name, and gives you the deed and keys to your newly purchased property.

You are now allowed to move in, paint or renovate.

After Closing Costs

Moving Costs – Whether you are hiring a moving company or renting a truck to move your own belongings, this is a hard expense.

Move in costs – Whether hiring a professional cleaning service or buying the supplies yourself, there are some associated costs. Especially, if you have to dispose of a large amount of trash left behind.

Telephone, Cable & Internet – Be prepared to pay for ‘administrative charges’, such as disconnection and connection fees.

Parking – If you need front lawn or street parking, the city charges a fee for both, which have to be renewed.

Automobile Insurance Premium Adjustment – Depending on your neighbourhood, your automobile insurance premiums may go up or down.

 

Baldo Minaudo is Real Estate Broker in the upscale Beaches neighbourhood of Toronto, working with Real Estate Homeward Brokerage. He has an urban planning degree, Masters in Business Administration degree, with over 25 years of Property Management and investment financing experience. He can be reached at 416-564-0245.

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