Deciding to become a homeowner is one of the biggest expenses an individual or a family can undertake during their lifetime. That said, housing affordability and high borrowing costs continue to be the top concerns for prospective home buyers. And even if you have managed to save up for the hefty down payment and are confident about being able to afford your monthly mortgage payments, there are several other secondary costs related to purchasing a home that you would need to factor into your expense sheet before you decide to take the final plunge.

This week, guest author Angat Saini from Accord Law Professional Corporation writes about the typical closing costs related to buying a home in the Greater Toronto Area (GTA).

Land Transfer Tax (LTT)

Toronto homebuyers are subject to both provincial and municipal land transfer taxes. The LTT is calculated on a sliding scale based on the property's purchase price. For example, a $1,000,000 home in Toronto would be subjected to a provincial LTT of $16,475 and a municipal LTT of $16,475, with the total LTT adding up to $32,950. It is important to note that first-time homebuyers can qualify for LTT rebates, which allow for a maximum savings of $4,000 provincially and $4,475 municipally.

Legal Fees

Hiring a real estate lawyer is essential for navigating the complex legal aspects of a property transaction. Legal fees typically cover services, such as title searches, document preparation, and facilitating the transfer of ownership and mortgage registration. They typically range between $1,500 and $2,000.

Adjustments and Prepaid Expenses

Buyers may need to reimburse the seller for prepaid expenses, such as property taxes, oil or propane tanks, and maintenance fees. These adjustments ensure a fair distribution of costs between the buyer and the seller.

Title Insurance

Title insurance protects buyers from potential issues related to the property's title, such as outstanding taxes, boundary claims, and fraud. While not mandatory, a vast majority of buyers opt for this insurance for added peace of mind. You can expect to pay approximately 0.1 percent of your home’s purchase price for title insurance.

Home Inspection Costs

While not mandatory, a home inspection is advisable to uncover potential issues with the property. Inspection costs vary based on the size and complexity of the home but are a worthwhile investment to assess a property's condition. They typically cost between $500 and $1,000.

Home Appraisal Fees

Some lenders may require a professional appraisal to assess the property's value. Buyers would need to pay for this service, especially if it's a pre-condition for their mortgage approval. This fee is approximately $200 to $400.

Mortgage Insurance

Some mortgage lenders may require borrowers to obtain and pay for mortgage insurance. This cost can be a significant consideration for those with smaller down payments and is often overlooked. Many homebuyers are surprised to learn that the mortgage insurance, or often the tax levied on the mortgage insurance premium, is deducted from the mortgage advance.

Harmonized Sales Tax (HST)

While most resale homes are exempt, new constructions may be subject to HST. Buyers should be aware of the applicable taxes, as they can significantly impact the overall cost.

Homeowner's Insurance

Lenders often require proof of homeowner's insurance before finalizing a mortgage. Premiums vary based on factors like the property's location and coverage limits. Understanding and budgeting for these closing costs is essential for a smooth real estate transaction. Buyers should work closely with their real estate agents and legal professionals to ensure a comprehensive financial plan that encompasses all potential expenses.

If you have any questions about potential closing costs, please do not hesitate to contact Accord Law at 416-288-8000 or info@accordlaw.ca for a detailed quote. 

Have a great weekend!