Closing Costs Buyers Forget to Budget For in Ontario

Many buyers save carefully for a down payment and then discover that closing day asks for more. Taxes, legal costs, bills that are split with the seller and the cost of actually moving in all come due at about the same time.

This article gives you a checklist of costs that are easy to forget when buying in Ontario. It explains how the rules work in general. Your own figures depend on your purchase, so a lawyer can confirm them for you.

Start with the down payment and the deposit

The federal minimum down payment is 5% for homes of $500,000 or less. For homes from $500,000 to $1.5 million it is 5% of the first $500,000 plus 10% of the portion above $500,000, and for homes of $1.5 million or more it is 20%. If you put down less than 20%, you will typically need mortgage loan insurance.

For CMHC homeowner mortgage loan insurance, the purchase price must be below $1,500,000. A non-repayable financial gift from a relative is one of the traditional down payment sources.

The deposit you pay with your offer is normally held by the brokerage in a real estate statutory trust account. It can be released only with a mutual consent or release signed by all parties, or under a court order. How much you need and when it is due depends on your agreement, so confirm the timing with your lawyer before you sign.

Land transfer tax and who may get a refund

Ontario land transfer tax is charged on the value of the consideration. That is not limited to the price in the agreement: it can include the value of any liability assumed, such as a mortgage, and any benefit conferred. Municipal rules can differ, so ask your lawyer whether a local tax also applies to your purchase.

Ontario's first-time homebuyer refund is up to $4,000. You must be at least 18, must never have owned an eligible home anywhere in the world, and must occupy the home as your principal residence within nine months. The refund must be claimed within 18 months after registration.

• If you are not yet a citizen or permanent resident, the refund is limited to citizens and permanent residents for agreements signed after November 14, 2016, but you have 18 months after registration to become one and then apply.
• If your spouse owned an eligible home while married to or in a spousal relationship with you, neither of you qualifies for the refund.
• Foreign nationals buying residential property in Ontario may face the 25% Non-Resident Speculation Tax, with exemptions and a possible rebate.

Costs that show up on closing day

Beyond taxes, plan for the following. These amounts vary a great deal, so get real quotes rather than guessing.

• Legal fees and disbursements, including title searches and registration costs.
• Title insurance, if your lawyer recommends it for your purchase.
• Adjustments: bills such as property taxes, utilities or condominium fees may be split between you and the seller. How this works depends on your agreement, so ask your lawyer to explain what applies to you.
• Home insurance: ask your lender and your lawyer what coverage you need to have in place before closing.
• Mortgage insurance premiums, if your down payment is below 20%.
• A home inspection, and a survey or appraisal if your lender or lawyer asks for one.
• Utility connection, address change and key or lock replacement costs.
• Moving costs, storage, and basic repairs or furnishings you need right away.

If you are buying a renovated home, also ask what permits exist. A building permit is required before most construction, additions, renovations and changes of use, and the municipal building department can confirm what permits exist for a property. Missing permits can turn into a cost later.

Registered accounts that can help with the cash

Two federal programs can help you fund a purchase, and they can be used together for the same qualifying home as long as you meet all the conditions at the time of each withdrawal.

An FHSA withdrawal must meet every condition, including a written agreement to buy or build a qualifying home and filing Form RC725 with the issuer. If a condition is not met at the time of withdrawal, the amount is taxable and must be included in income. Missing an HBP minimum repayment adds the shortfall to your income.

What to do next

• Write a closing budget that lists every item above with a real figure beside it.
• Add a cushion for surprises, because costs often change between offer and closing.
• Ask your lawyer for an estimate of land transfer tax, any refund and adjustments before you waive conditions.
• Check your eligibility for the first-time homebuyer refund, an FHSA and the HBP, and note each deadline.
• Keep your closing funds available in the form your lawyer asks for, and confirm timing a few days before closing.

Frequently asked questions