Buying a house is unlike any purchase you will make in your life. For one, it’s a purchase where you rarely pay the actual price upfront. Most people will mortgage their homes and pay monthly payments. However, there are also additional fees you may not be aware of at first that aren’t part of the purchase price, but that you need to pay along the way to purchasing your home.
The city of Toronto is one of the hottest and most expensive markets in the country, so making sure you have enough for your home can be a challenge. If you are planning to buy here, be it a home, a condo, or something else, you need to be aware of what closing costs can end up costing you so you can budget properly for your home purchase.
What are closing costs?
Closing costs essentially include anything that you pay beyond the cost of your home during the purchase. This means that your home’s cost and your monthly payments are not considered closing fees. In addition, any fees you pay after the sale are not closing fees. These would include things like property tax or utilities.
Closing fees can come from many different places. These can include home inspections, land transfer taxes, legal fees, title insurance, and more. In addition, agent commissions may be considered closing fees.
What is the average amount to pay on closing costs in the city of Toronto?
In general, closing costs in Toronto can end up costing a buyer about 4-7% of your home’s purchase price. To figure out what that means in actual dollar values, we should look at the cost of homes in Toronto.
Based on the most recent statistics from the Toronto Regional Real Estate Board (TRREB) for November 2021, the average cost of a detached home was $1,567,832, a semi-detached home was $1,206,016, and a condo was $715,104
Assuming a closing cost of 5%, for a detached home you would be paying around $78,000 on a detached home, $60,000 on a semi-detached home and about $35,000 on a condo.
Naturally, most fees involved with closing your property will vary depending on your circumstance, the numbers offered in this article are merely a guideline. You may also want to look up a closing cost calculator online for specific numbers for your situation.
Who pays closing costs?
When it comes to who pays the closing costs, both the buyer and seller can be on the hook for some costs. Though the buyer pays a larger number of costs, the actual prices paid can be comparable.
What are closing costs as a buyer?
Land Transfer Tax
Land transfer taxes are paid on all real estate purchases in Toronto. Ontario charges a land transfer tax across the province, and there is an additional land transfer tax in Toronto itself. This tax usually makes up one of the largest components of your closing costs. Both land transfer taxes work similarly, scaling the tax rate in proportion to the price of the home.
Ontario Land Transfer Tax
In Ontario, the land transfer tax breakdown works as follows:
- For amounts up to and including $55,000 the rate is 0.5%
- For amounts above $55,000 and below $250,000 the rate is 1%
- For amounts above $250,000 and below $400,000 the rate is 1.5%
- For amounts above $400,000 the rate is 2%
- For amounts over $2 million where the land contains 1 or 2 single family units the rate is 2.5%
Keep in mind that if you are paying for a house with a purchase price of $750,000 for example you will not simply pay 2% in taxes. Rather, you will pay 0.5% on the first $55,000, 1% on the amount between $50,000 and $250,000, and so on. So in this case, you would pay $11,475, or effectively about 1.53% of the property purchase price.
Toronto Municipal Land Transfer Tax
In Toronto the Municipal Land Transfer Tax actually has the same rates as the provincial tax, so your payment will be essentially the same as for the Ontario Land Transfer Tax. Though they have the same values, they are separate taxes. Be sure to budget for both.
The Toronto Land Transfer Tax only applies to homes bought in the city of Toronto itself, not the GTA.
First Time Home Buyer rebates for land transfer tax
Where the Ontario land transfer tax and the Toronto land transfer tax vary however are incentives for first-time buyers. For the provincial land transfer tax, first-time homebuyers can receive a refund of the first $368,000 of the home’s purchase price, or a total of $4,000. A first-time homebuyer can also rebate a maximum of $4,475 off their Toronto Land Transfer Tax, or up to the entire amount for a home with a $400,000 purchase price.
So back to that example from before, on a $750,000 purchase price, you would pay a combined total of $22,950 in land transfer taxes to the city and the provincial government, or about 3%. As a first-time homebuyer, you could claim both rebates in full and only pay $14,475.
Non-Resident Speculation Tax
The province charges a 15% tax on the purchase price of homes bought in the greater golden horseshoe region (of which Toronto is included) by anyone who is not a permanent resident or citizen of Canada. This can greatly increase your closing costs, though most people will not be required to pay.
Home inspection fees
Before spending so much on a house you probably want to have an inspection done to ensure you are getting a good deal on your home, and don’t run into any unexpected surprises down the line. A good inspection will cover numerous aspects of your home’s property, structure, and equipment.
If your inspection is all clear then you can be confident that your home is as advertised. If something does come up in the inspection, you can bring this up with the seller and either discount your offer, or request that they have it fixed before you purchase the house.
However, in a hot real estate market like Toronto, there are often multiple buyers going after the same house, many of whom will be willing to forgo any conditions on their offer. While it is still good to to know what you are buying, you will not necessarily be able to put up conditions.
The cost of a home inspection will depend on the size of the home and the number of things to inspect, but generally, you should expect to pay from around $500 to $1000.
Along with a home inspection, you may want to consider a land survey. Especially in the city where every inch counts, you want to make sure you know exactly where your property boundaries are to avoid any future disputes with neighbours. You can expect a land survey to cost from around $500 to $2,000 depending on the property.
Before issuing a mortgage loan on a property, the lender will often want to do their own appraisal on the property. This is done so they can confirm that the value being paid for the home is fair in relation to the market value. This can cost around $300 or more, however, the property appraisal fee can often be covered by the lender.
Legal fees and title insurance
Before you close your sale, you will need to consult the services of a real estate lawyer to make sure all the legal concerns are in order. Lawyers handle a lot of complicated legal processes, such as a title search and preparing the title deed and mortgage, that would be impossible to do on your own. A real estate lawyer is obviously a highly trained professional, and thus you must pay legal fees for their service. In general, you should expect to pay more than $500, though legal fees vary by circumstance. In Ontario, working with a real estate lawyer is mandatory for all real estate purchases.
Your lawyer can also help you with purchasing title insurance. it is often highly recommended for buyers to purchase this insurance. Title insurance can protect against any issues that may arise with the property title such as fraud, or title defects. Title insurance can cost about $400.
Home insurance will protect you in the event of damage to your home. The extent of the protection will depend on your particular insurance package, as will the price. You should make sure your insurance policy should be in effect on the closing date to ensure you are protected.
CMHC mortgage default insurance and sales tax
If you are paying less than a 20% down payment on a home with a value under $1 million, you will be required by law to purchase mortgage default insurance. This insurance will vary depending on your down payment amount, with a lower down payment incurring higher rates. The minimum down payment amount of 5% will pay about 4% in CMHC insurance. The cost of your insurance may be paid upfront, though often it is added to the mortgage principal. However, what must be paid upfront is an 8% provincial sales tax for the insurance.
If your home cost more than $1 million, as many homes now do in Toronto, you must pay at least 20% and will not need mortgage default insurance.
Reimbursements and property tax adjustment
Often a previous property owner will have prepaid for certain fees relating to the property. These include pre-paid property taxes, utilities, or condo fees, and more. Since the seller already paid these fees, and cannot get a refund, they would essentially be paying your bills for you. In these cases, the seller may ask that you reimburse these fees as part of the sale.
Closing costs for home sellers
As the seller, you will not need to pay the same closing fees, but you can still end up paying a significant amount.
One of the biggest fees a seller will pay is the agent’s commission on the sale. Generally, the commission for both the seller and buyer’s agents comes out of the money received for the property. The standard for this fee is around 5% of the home’s sale price, plus a 13% provincial sales tax. This amount will then be split between the buyer and seller. The fee can on occasion be lower, especially in Toronto’s hot real estate market where agents are adding incentives to encourage buyers and sellers to work with them.
As an example, if your home sold for $800,000, then you would get $754,800 and pay $45,200 in commissions and taxes.
There are a ton of different costs involved when buying a home, and keeping track of all of them can be tough. Though we did our best to outline the most important ones here, there could be even more that crop up. The real estate professionals you work with, be they agents, brokers, or lawyers, will be the best people to help you understand exactly what you need to pay and why, but it is good to educate yourself as well to catch any mistake that could happen.