Buying a home is one of the most significant investments you and / or your family will make. Whether you’re a first-time home buyer or moving to your second home, it is important to educate yourself on the closing costs of purchasing a home.
We will outline the potential hidden costs of buying a home in Ontario. We will also outline the expected cost of those fees. Hopefully, this helps you better understand how much it actually costs to purchase a new home.
Penalty for Leaving Your Current Mortgage
If you currently have a mortgage and your term is not up, there will be a cost to breaking that mortgage contract prior to maturity. This cost depends on the mortgage conditions under your contract.
Some mortgages allow you to make changes at the 4th year of a 5-year mortgage. Your mortgage may also have a clause that allows you to move, or port, your mortgage to a new property. This however will need to be discussed with your mortgage broker.
Home inspection
A home inspection is not a legal requirement but should be completed before any home purchase. The inspector will check the home to make sure there are no issues of concern you should be made aware of on the property.
If you choose to purchase a home without an inspection, it will be noted on your closing documents that you are taking the home as is and can lead you to assume unknown problems on the property that were not apparent to you on closing.
An inspection can cost anywhere from $500 – $1500 and depends on the size and location of the property. The inspector is trained to look for potential damage or issues with the home. They will check for:
- Foundational cracks
- Electrical issues
- Plumbing issues
- Age of the roof
- Age of the large appliances (furnace, water tank, etc.)
- Basement
- All exterior walls of the property
Appraisal Fee
The mortgage provider requires an appraisal fee. They request an appraisal so they know what the home is actually worth (regardless of the agreed-upon purchase price). It protects their investment as your property is used as collateral on your mortgage.
An appraisal costs between $275 to $500 depending on the location and size of the property.
Mortgage Insurance
You will need mortgage insurance if the deposit you provide is less than 20% of the purchase price. The insurance covers the lender in case of default.
The cost of insurance is based on the down payment and the total amount of the mortgage. It is common to see mortgage insurance between 2.8% to 4% of your mortgage’s total value.
Legal Fees
Buying a home requires assistance from a real estate lawyer who will ensure all legal aspects of your transaction are taken with the necessary due diligence and care. Each form needs to be accurately drafted and signed. Errors in this paperwork could cost you money. It is important you have a real estate lawyer drafting and filing each document on your behalf.
Your lawyer will help you with your mortgage papers, purchase agreements, title insurance, search requirements, registration, and more. If you are selling your home, your lawyer will ensure any existing mortgage or other encumbrances are discharged, real estate agent commission and mortgage broker fee is paid (if applicable) and that the appropriate authorities are notified of ownership change.
Land Transfer Tax
As a purchaser of a home, you are required to pay Land Transfer Tax (LTT). Your lawyer will make sure the provincial LTT is paid on your behalf when the home is transferred into your name on your official closing day. The amount of LTT owed depends on the price of your home.
- Up to $55,000: .5%
- $55,000 – $250,00: 1%
- $250,000 – $400,000: 1.5%
- $400,000 – $2,000,000: 2%
- Above $2,000,000: 2.5%
All properties in Toronto are subject to an additional municipal Land Transfer Tax, which takes the same percentage breakdown as the provincial LTT noted above.
If you are a first-time home buyer, speak to your lawyer as you may be eligible for a rebate on your LTT.
Deposit
You are required to put a deposit down on your purchase. As mentioned in the section about mortgage insurance it is best to put a deposit of more than 20% of the purchase price to save yourself from paying the mortgage insurance premium.
The minimum deposit in Ontario is 5% down. The deposit you provide is adjusted towards the amount owing on the final closing.
One of the most important steps in purchasing a home is finding the right lawyer. A real estate lawyer can help you make sure you are taking the right steps for your investment. Call us today to talk to one of our real estate lawyers.