If you’re thinking of buying a property in Ontario you might be looking for an exact breakdown of how much you can expect to pay for it. I’d like to share with you an illustration of how much it would cost you to buy a typical resale, single-family home with a purchase price of $800,000 and a 10% down payment.
Before you even sign any Agreement of Purchase and Sale, make sure you have money for a down payment and an extra 2% – 4% of the purchase price to cover additional costs associated with your purchase.
I grouped these costs into 3 categories based on the time when they need to be paid. And they’re typically paid before closing, at closing and after closing.
Costs Before Closing
Once your offer has been accepted, a Deposit must be delivered to the listing brokerage. Your deposit counts towards your down payment and it basically shows that you’re serious and committed to buying.
Deposit
Sellers can ask for a certain dollar amount or they can require a percentage of the purchase price. Let’s say – in our case if our sellers are asking for a 5% deposit it means they want you to deposit 5% of $800,000 which is $40,000. And you’ll need to have this money available and ready to be released from your bank account as a deposit shortly after your offer has been accepted otherwise you could risk losing the house.
Home Inspection
Let’s assume that you put a Home Inspection condition into your offer and the sellers accepted it. In Ontario, you’ll typically have 5 business days after the acceptance to get it done. A home inspection is not mandatory, but if market conditions allow you to get it done, I would recommend it.
Your realtor will arrange for a licensed home inspector to come to the property. They will spend a few hours going through the property assessing its condition. Once it’s done, the inspector will send you a report with their comments and recommendations along with the amount of money needed to get all the major issues fixed. Hopefully, this report will help to reassure you that everything is in order, and if you want to proceed with the purchase, your offer becomes firm.
The average cost of a home inspection would be around $300 to $500, depending on the size and the location of the property. If you are buying a property that has a septic tank or a well and you want to get some tests done, include these inspection costs in your budget. Also, if you need a survey, and the seller can not provide it to you, count on this expense as well. And if you’re buying a condo unit, you might be paying for a status certificate.
Once your deal is firm, your realtor sends the paperwork to your mortgage agent to arrange a mortgage for you and to your lawyer to handle your paperwork and close the whole transaction. This is a few weeks window when your mortgage agent along with your lender and your lawyer work together hand in hand to successfully close your deal.
Appraisal
If you’re getting a mortgage, the chance is that your lender will require an Appraisal as a part of the mortgage approval process. It’s not up to you whether or not you want to get the property appraised. It’s the lender’s decision and the reason is simple – they are lending you money and need to make sure the price is fair and reasonable and that lending you money is a good investment.
Some lenders would cover the appraisal costs – for example, if you’re providing less than a 20% downpayment, your lender will typically cover the costs. I included this fee in this illustration in case your lender would not cover it. The cost of this fee can range from $350 to $450 depending on the location of the property.
So, before closing you’ll need money for your deposit, the home inspection and the appraisal. In our case, the total amount would be $40,950.
Costs At Closing
A few days before closing, you’ll be contacted by your lawyer’s office advising you that your purchase is coming to a close. And this is also when they’ll let you know how much money you’ll need to provide At Closing to cover all costs associated with closing your purchase.
These closing costs include:
- Lawyer’s fee
- Title Insurance fee
- Land Transfer Tax
- Adjustment fees and
- Mortgage-related fees
Lawyer’s fee
The first closing cost would be the Lawyer’s fee and the minimum cost you’re looking at would be around $1,600. This fee covers everything your lawyer and their staff would do for you. Such as performing a title search, purchasing title insurance, registration of your mortgage, and registration of the deed. You’ll also pay for search costs, postage, and admin fees related to your transaction.
Title Insurance
The next thing to be aware of is the Title Insurance which is pretty much standard when buying a property in Ontario. It is insurance protecting you from real estate fraud or any title defect. It’s a one-time payment of around $750 and it lasts as long as you own the property.
Land Transfer Tax
Then the next non-optional fee in Ontario is the Land Transfer Tax and this one can be huge. Some people know that this fee exists, but some people have no idea. Even for those who are aware of this fee, it can be a shock to see the amount they have to pay at closing.
The provincial land transfer tax in Ontario varies based on the purchase price and it can range from 0.5% to 2.5% of the Purchase Price.
In our case when buying an $800,000 home outside of Toronto, the Land Transfer Tax will be $12,475. If the property was in Toronto, your tax would double since for Toronto purchases there’s not only provincial tax to be paid but there’s a municipal tax applied as well.
Adjustment fees
The next fees included in the closing costs are the Adjustment fees. You will not necessarily experience these costs but it’s good to be aware of them and it’s wise to put aside around $1,000 in case the sellers prepaid their property taxes or utilities in advance. If they did, you need to pay the sellers back the prorated amount.
PST on Mortgage Default Insurance
The last closing fee is the Provincial Sales Tax on Mortgage Default Insurance. If you’re buying a home with less than a 20% down payment, you must purchase Mortgage Default Insurance. This insurance is a requirement and it’s not protecting you, it’s protecting your lender in case you will stop paying your mortgage payments and you’ll go to default.
The insurance premium ranges from 0.6% to 4% of the mortgage amount. You don’t have to pay this cost upfront. It can be added to your mortgage, it’ll be included in your regular mortgage payments and paid off over the life of your mortgage.
So for example, if you’re buying an $800,000 home with a 10% down payment, the mortgage default insurance applied to your deal will be $22,320.
If this amount is added to your mortgage, then your total mortgage amount will increase by the amount of this premium. Your new mortgage amount will then be The Purchase Price minus your Down Payment plus the Mortgage Default Insurance Premium. In the case of our $800,000 purchase, the new mortgage amount will be $742,320.
While the mortgage insurance premium can be included in your mortgage amount, there’s a provincial sales tax applied to this premium that can not be included and must be paid with cash. In Ontario, an 8% PST on a premium of $22,320 would be $1,785.60 (rounded $1,786) and this amount will be included in your closing costs.
So, to close this imaginary transaction, your lawyer’s office will ask you to bring a check covering the closing costs and the rest of the down payment. In our case, you will be bringing a cheque in the amount of $57,611 which is the sum of the remainder of the down payment of $40,000 and the closing costs of $17,611.
Costs After Closing
And let’s not forget the Costs After Closing such as the cost of a moving truck and connection charges for utilities. To cover these costs try to budget for around $2,500.
So with that last fee, here is the sum of money you need to have at your disposal when purchasing a single-family resale home in Ontario, outside of Toronto with a purchase price of $800,000 and a 10% down payment. You’ll need to have around $101,000 from which $80,000 would be for a downpayment and around $21,000 to cover all the additional costs we talked about here.
- Costs Before Closing: $40,950
- Costs At Closing: $57,611
- Costs After Closing: $2,500
- Total: $101,061
- Down Payment: $80,000
- Additional Costs: $21,061 = 2.63% of $800,000
