What are closing costs when buying a house? Ontario guide

Buying your first home in Canada is an incredibly exciting experience. But, as a first-time home buyer, it can come with some surprises, especially when your final bill comes around. Most new home buyers focus on saving for their down payment, only to be caught off guard when it comes to closing costs. According to the Government of Canada, these closing costs in Ontario can add up quickly, often ranging between 1% to 4% of the purchase price of your new home. That means a $600,000 home could cost you an extra $9,000 to $24,000 on top of your down payment.

Whether you're purchasing a luxury condo in downtown Toronto or a single-family home is a quieter neighbourhood elsewhere in the province, knowing what closing costs are and why they exist can help you budget your finances more efficiently and make your buying experience more informed. In this guide, we're going to be going over just that and more. Stick around for more information.

What are closing costs in Ontario?

Closing costs in Ontario refer to the legal fees and administrative expenses you pay when purchasing a property. The term "closing" means you're in the final stage of the home-buying process, where the property is legally transferred into your name. This process can be complex and involves legal paperwork, document registrations, taxes, and other services that cost money to complete.

It's important to mention that these closing costs are separate from your mortgage and down payment. They can range from legal fees, home inspection fees, to taxes, and more. Closing costs can also vary based on the type of property you're purchasing:

• Property type: According to Storeys.com, in Canada, new-construction residences may include construction fees, warranty expenses, and Harmonized Sales Tax (HST), but resale homes do not have these additional expenses.

• Location: Resale homes in provinces such as Ontario are taxable under the provincial Land Transfer Tax, and in some cities, like Toronto, you will also be required to pay a municipal land transfer tax on top of this.

• Your buyer status: First-time home buyers in Ontario can receive refunds such as the Ontario Land Transfer Tax refund (up to $4,000) and other incentives. Non-residents (non-citizens or non-permanent residents) are liable to the Non-Resident Speculation Tax (NRST), which is a 25% tax on home, which was recently implemented in October 2022.

• Your lender: According to Nerd Wallet, if you have less than a 20% down payment, lenders may include or waive appraisal, administrative, or other broker fees. They may also require mortgage default insurance.

Breakdown of house closing costs

Let’s take a closer look at the typical closing costs you can expect to pay in Ontario:

Land transfer tax

All real estate purchases in Ontario are subject to land taxes. Land taxes vary across Canada but are usually referred to as land transfer taxes (LTTs) or property transfer taxes (PTTs). Ontario has a multi-tiered provincial land transfer tax, which means that the amount of tax you pay is dependent on the purchase price of the home.

How Ontario’s land transfer tax is calculated

• Up to $55,000: 0.5%

• $55,000.01 to $250,000: 1.0%

• $250,000.01 to $400,000: 1.5%

• $400,000.01 to $2,000,000: 2.0%

• Over $2,000,000: 2.5%

If you're buying in Toronto, you’ll also owe a municipal LTT, which essentially doubles the amount of the land taxes you owe. For example, on a home purchase price of $750,000 in Toronto, land transfer taxes could come to over $20,000.

Legal fees to your real estate lawyer

Legal fees are another type of closing cost you'll need to be ready to pay. When you buy a home in Ontario, you will need to work with a real estate attorney to seal the deal. Your attorney will review key documents, like the purchase agreement and mortgage contract. They may also help with the title search and registering a title in your name. These legal and administrative fees range from $1,000 to $2,500.

Home inspection fees

Home inspections aren't mandatory, but they are beneficial when buying a residential property. Hiring a professional inspector to inspect your home before signing on the dotted line is one of the smartest decisions you can make as a home buyer.

By having your home inspected, you can be sure that there are no major issues or repairs needed. If the inspection reveals the opposite of what you hoped, you might be able to negotiate with the seller to lower the purchase price or complete some of the necessary repairs before the move-in date. Insight Law Firm estimates that home inspection fees, on average, will cost you between $300 and $600.

Appraisal fees

If you are buying a new home with a mortgage, you'll need to pay an appraisal fee. Most mortgage providers require borrowers to have their homes appraised before they will approve them for a mortgage loan. The lender needs to confirm the market value of the home to decide how much money to loan you.

The cost of hiring a professional appraiser to conduct the home appraisal usually falls to the home buyer, though in some cases, the lender may agree to waive this fee instead of a smaller financing fee to secure a mortgage with you. According to Athena Law Office, appraisal fees can range between $300 and $1,000 in Ontario.

Title insurance premiums

Title insurance is typically required by mortgage lenders. Title insurance is needed if a property ownership dispute arises after you purchase the home, and it essentially protects you against fraud or other issues. In some cases, your real estate attorney will handle the purchasing of title insurance for you, which means it may be incorporated into your closing costs. If title insurance is not already included in your closing costs in Ontario, you can anticipate this insurance premium to cost you between $200 and $500.

Mortgage default insurance (CMHC Mortgage Insurance)

Mortgage default insurance is a closing cost that a home buyer will incur if their down payment amounts to less than 20% of the purchase price. In Canada, any home purchase with a down payment below 20% is subject to mortgage default insurance, which is issued by the Canada Mortgage and Housing Corporation (CMHC).

This type of insurance is often referred to as CMHC insurance. CMHC insurance is designed to protect the mortgage lender should the borrower stop making their monthly mortgage payments and default on their loan. Typically, the cost of the CMHC insurance policy must be paid up front, which means that buyers must be prepared to pay their premiums when they close on their homes. The cost of mortgage default insurance varies, averaging between 2.8% and 4.0% of a home buyer's mortgage.

Property tax adjustments

Home purchases in Ontario are subject to property taxes. Usually, these can be paid monthly, quarterly, or annually. If the seller of the home you bought opted to pay for their property taxes upfront, then you may have to reimburse the seller for these taxes by paying them a prorated amount from the day you close on the house to the day they’ve paid up to. The amount you might be required to pay in property tax adjustments will be listed on the Statement of Adjustments, and the first payment owed will need to be made on closing day.

Non-resident speculation tax

As we mentioned above, non-Canadian residents must pay a Non-Resident Speculation Tax (NRST), which is a 25% tax on the purchase price of their home.

Utility hookups / service transfers

Once you move in, you'll need Hydro, water, gas, and other utilities that often come with an activation charge. This can cost you a couple of hundred dollars.

Status certificate fee (for condos)

If you're purchasing a condo, your real estate lawyer will require a status certificate from the condominium board. This document describes the building's financial standing and any important repairs. The fee is fixed at $100 in Ontario.

Property survey fee

One final closing cost that may also be required by a mortgage lender is the property survey cost. A property or land survey is when a surveyor examines the land your home sits. Specifically, they will measure the plot of land and assess the structures sitting on it. As you might suspect, land survey costs vary depending on where you live, as well as the size of your home and the time of year the land is being surveyed.

Additional costs to prepare for

Beyond closing costs in Ontario, other expenses you'll need to remember:

Down payment

Anyone buying a home in Canada is required to make a down payment. There are strict rules surrounding down payments in Ontario. Down payment requirements range from 5% of the purchase price to 20% of the purchase price and depend on how much your home costs. For properties under $500,000, a 5% down payment is all that is required. For homes between $500,000 and $1,000,000, a 10% down payment is required, and for homes over $1,000,000, a 20% down payment is required.

Moving costs

Anytime someone moves into a new home, they will need to prepare for the cost of moving. Moving costs vary greatly as they are dependent on the volume and value of your belongings, as well as whether you hire a professional moving company to move your items for you. These moving costs can cost you anywhere between $500 to a few thousand dollars.

Home insurance

Although home insurance is not mandatory in Canada, protecting your property is essential. The average home insurance premium in Ontario as of October 2024 was $1,913. However, this can vary greatly depending on where your home is located, your insurance history, the insurance company you work with, and more.

Initial cleaning and repairs

Whether it’s steam-cleaning the carpets or painting walls, home buyers will want to budget at least an extra $1,000 on top of their closing costs in Ontario for cleaning and small upgrades.

Furniture and appliances

Once you've made your home purchase, you'll need to furnish your home and potentially upgrade outdated appliances. We suggest budgeting an extra couple of thousand dollars just in case.

Storage fees

Downsizing to a smaller property? You may need to purchase a storage locker for non-essential home items. Temporary storage units cost around $100 to $600 per month.

First-time homebuyer rebates & credits

If you're buying your first home in Ontario, take advantage of these government programs to keep as much money in your wallet as possible:

Ontario land transfer tax refund

To help ease the burden of Ontario’s property transfer tax, this home buyer incentive allows eligible buyers to receive a maximum land transfer tax refund of $4,000.

Home buyers' plan (HBP)

Under the federally run Home Buyers’ Plan, eligible homebuyers can withdraw up to $60,000 from their Registered Retirement Savings Plans to purchase a qualifying home (as of April 2024).

First home savings account (FHSA)

Canadians can save up to $8,000 annually in a First Home Savings Account, with a lifetime maximum of $40,000, tax-free to put toward the purchase price of their first home.

Toronto first-time home buyer incentive

Similar to the Ontario First-Time Home Buyer Incentive, this municipal assistance program allows homeowners to save money on the City of Toronto’s property transfer tax. Specifically, it offers a tax rebate of up to $4,475 and can be claimed in conjunction with the Ontario First-Time Home Buyer Incentive, for possible savings of $8,475.

Examples of average closing costs in Ontario

To give you a better idea about closing costs in Ontario, let's take a look at some examples below:

1. $400,000 home in a small Ontario Town

Jack and Anna are purchasing a small single-family home outside of the GTA for $400,000.

• Land Transfer Tax: Approximately $4,475

• Legal Fees: $1,500

• Title Insurance: $400

• Home Inspection Fees & Appraisal Fees: Approximately $800

• Utilities: $300

• Other Fees, Like Moving a Property Tax Adjustments: $500 to $1,000

• Total Estimated Closing Costs: Approximately $7,500 to $9,000

2. $750,000 condo in Toronto

Holly and Aaron are buying a condo in downtown Toronto, which means they'll have higher closing costs:

• Ontario LTT: $11,475

• Toronto LTT: $11,475

• Status certificate: $100

• Legal fees: Approximately $2,000

• Title insurance & Appraisal: Approximately $700

• Utility transfers: Approximately $300

• Other costs, like condo move-in fees: Approximately $1,000 and $1,500

• Total estimated closing costs: Estimated between $25,000 and $27,000

$1.2M detached home in the Greater Toronto Area

Jasmine and Lauren are buying a detached home in the Greater Toronto Area for $1.2 million. Because their home's purchase price is higher, they can expect the following total closing costs:

• Ontario LTT: Approximately $20,475

• Toronto LTT: Approximate $20,475 (if they are in downtown)

• Legal & title fees: Around $2,500

• Mortgage insurance PST: Around $2,000 because they didn't put 20% down

• Inspection, property appraisal fee & utilities: Approximately $1,000

• Additional fees adjustments for taxes, moving, etc.: Around $2,000 to $3,000

• Total estimated closing costs: Estimated between $45,000 and $50,000 or more

How to budget for closing costs

Planning for closing costs is as crucial as budgeting for a down payment. Remember, these costs normally vary from 1.5% to 4% of your purchase price. Here are some tips you can use to help you save smartly:

• Start early: Open a separate savings account for closing costs when you start saving for your home. If you open an FHSA, you can deduct your savings from your income tax, which is a double bonus.

• Use government programs: Offset closing costs with rebates like the Ontario Land Transfer Tax refund, home buyers plan, and more!

• Budget extra: Unexpected expenses, tax adjustments or utility deposits can add up quickly. Make sure you're budgeting for these additional closing costs.

• Calculate approximate closing costs: Use the 1.5 to 4% range to estimate your potential closing costs ahead of time based on your property purchase budget.

• Review your mortgage lender fees: Most mortgage lenders will be upfront about their fees ahead of time to give you a better idea of what you can expect to pay.

When do you pay closing costs?

Most of the time, you'll pay closing costs on the day your real estate transaction occurs, and all legal transfers occur. But, there are some exceptions to this:

• Home inspection and appraisal fees are often paid up front once the service is completed.

• Legal fees, title insurance, and any adjustments are due on your closing date.

• Mortgage default insurance premiums are usually paid before your closing date.

Rest assured, your full breakdown of closing costs will be presented to you by your real estate lawyer a few days before your closing date.

How to save on property closing costs

Most closing costs will add up quickly. To lower your bill as much as possible, remember to do the following:

• Shop around for real estate lawyers.

• Negotiate with your lender if possible, as they may be open to waiving or reducing fees.

• Take advantage of all available home buyer rebates.

• Check for first-time buyer promotions with your mortgage lender.

The bottom line

Closing costs can be a surprise for first-time home buyers, which is why understanding what the most common closing costs are and how to save for these can make a world of difference to your finances come your closing day.

Once you've purchased your home, BrokerLink is here to help protect your investment with affordable, customizable home insurance in Ontario tailored to your needs. Beyond standard policies, we can also help you find:

• Tenant and renters insurance

• Vacation property & cottage insurance

• Home insurance appliance coverage

• Comprehensive and broad home insurance

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Contact BrokerLink directly over the phone or use our free online quote tool today!

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FAQs on closing costs in Ontario

What costs should I be prepared to pay when buying a home in Ontario?

There are many costs that buyers must be prepared to pay when buying a home in Ontario. These costs vary depending on the circumstances of your home purchase, but they often include a down payment, earnest money deposit, home insurance, moving costs, legal fees, land taxes, title insurance, home inspection fees, home appraisal fees, and property survey fees, at a minimum. On top of these expenses, buyers may also need to budget for property tax adjustments, interest adjustments, CMHC insurance, non-resident speculation tax, and more.

Who is responsible for paying closing costs in Ontario?

Generally speaking, most closing costs are paid for by the home buyer. For instance, buyers should prepare to cover legal fees, home inspection fees, home appraisal fees, and more. In some cases, the buyer can negotiate with the seller to cover some of these fees. Alternatively, in some scenarios, a mortgage lender might agree to waive a certain fee, such as an appraisal fee, to secure your business. That said, it is the buyer who should budget for these costs as it is most often their responsibility to pay them.

How are closing costs paid?

Closing costs are typically paid via your real estate attorney. These costs, along with your down payment, are often paid on the date that you meet your attorney to sign the mortgage registration documents. Oftentimes, this is about a week before the closing date. Your attorney will advise you of the total amount owing in advance of the payment date.

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