Buying a home involves both one-time costs and ongoing home ownership expenses. Let’s take a closer look at the one-time costs. These include your down payment, land transfer taxes, legal fees and disbursements including title insurance, mortgage appraisal, home inspection, adjustments for property taxes and utilities, HST on mortgage insurance and a property survey (if applicable).
The down payment accounts for the greatest amount of cash in the purchase of a home, but it goes straight to your equity in the home. So, although I include it here, I do not really consider it an expense. Rather, it is your initial investment in the property. I went into more detail about down payment requirements in my blog post entitled “Determining What You Can Afford” which can be found at https://www.miiakelly.ca/determining-what-you-can-afford/. For the purposes of this article, let’s assume that you are making a down payment of 5% on a home purchase price of $500,000, which works out to be $25,000.
Land Transfer Tax
As with many purchases in life, the Ontario government collects a tax on the purchase of a home. Currently, the City of Toronto also collects a Land Transfer Tax in addition to the provincial tax. The Land Transfer Tax is due on closing and your lawyer will collect the funds from you in advance and pay the tax on your behalf. If you are a first-time home buyer, then you may be eligible for a rebate on this tax which can be claimed at the time of registration of the transfer of the property, thereby reducing the amount payable on closing. Your lawyer will handle the details of this process. For more information about this and other first time home buyer incentives, see my blog post here: https://www.miiakelly.ca/new-first-time-home-buyer-incentive-from-the-federal-government/.
The calculation of Land Transfer Tax involves an increase in tax rate as the home price increases and so the quickest way to calculate the tax is to use a land transfer tax calculator. Here are a couple of websites that I recommend for this calculation:
- Toronto Real Estate Board: http://www.trebhome.com/index.php/buying/calculators
- Ratehub.ca: https://www.ratehub.ca/land-transfer-tax
For example, on the purchase of a home priced at $500,000, the Ontario Land Transfer Tax would be $6,475. The first time home buyer rebate on this amount would be $4,000, if eligible, bringing the amount payable on closing to $2,475. If the property is located in Toronto, then the Toronto Land Transfer Tax would be an additional $6,475, for a total of $12,950. The first time home buyer rebate on this amount would be $8,475, bringing the amount payable on closing to $4,475.
Before your mortgage lender makes a commitment to loan you the mortgage funds on a particular property, they may want to send one of their Mortgage Appraisers to take a look at the property to make their own determination about the fair market value of the property. If the lender wishes to do so, then the cost of the appraisal will be charged to you, the buyer/borrower. Costs vary, but on average these appraisals can cost around $300 to $500.
You may opt to have a home inspection completed on your home (usually completed during the conditional period of your offer). Depending on the type of home being inspected, this will cost you around $400 to $500.
Your property insurance is an ongoing expense, but I make note of it here because your first premium payment will be due on the closing date. Premiums vary based on the size of your home and other individual features of the home, as well as the value of your personal contents. For a quote, it’s best to contact your insurance provider directly. If you would like a recommendation to an insurance provider, ask me and I will give you some suggestions.
Legal Fees and Disbursements
A real estate lawyer’s invoice will include their legal fee plus any expenses that they have paid on your behalf, such as registration fees for the Transfer/Deed and Charge/Mortgage and title insurance. For a purchase in the Greater Toronto Area, fees and disbursements can add up to around $2,000 (not including land transfer tax and any adjustments for property taxes and utilities).
Adjustments for Property Taxes and Utilities
The lawyers will make adjustments to the amount owing by the buyer, in the event that the seller has pre-paid any expenses associated with the property, such as any property taxes that have been paid for the full year, or any utilities such as a furnace oil tank which has been filled up on closing. Metered utilities are accounted for by the utility providers as of the closing date, and so there are no adjustments made for metered utilities.
In some cases you may wish to have an up-to-date survey of the property prepared, which can cost several thousands of dollars. Whether the buyer or the seller should bear the cost of a new survey can be negotiated during the offer process. Speak to your Real Estate Sales Representative and/or your lawyer about whether or not you want or need a survey for the property of interest. In many cases an up-to-date survey may not be necessary.
As you can see, every transaction will have unique details which affect the amount of cash that you will be required to produce on closing. Work with your Real Estate Sales Representative to discuss your unique circumstances and estimate how much cash you will be required to produce on closing.