There are plenty of hidden costs when buying a home in Ottawa. Purchasing a home in Ontario is an exciting endeavor, but it’s crucial to factor in all associated costs beyond the purchase price. Closing costs encompass various fees and expenses that come into play during the final stages of a real estate transaction. In this guide, we’ll provide a detailed breakdown of these costs to help you navigate the process with confidence.
If you’re budgeting to purchase a home, that’s amazing! Congratulations on your journey. Just remember to save that little extra for your typical closing costs. Generally speaking, you’ll want to budget between 3% and 4% of the purchase price of a resale home to be covered. So, on a house that costs $600,000, all the closing costs could run anywhere from $18,000 to $24,000.
That’s on top of the hefty down payment.
As an Ottawa seller, you don’t have to worry about nearly as much on your end, aside from the commission and lawyer fees. But if you’re buying something, whether it’s brand-spankin’ new or resale, there are a few extra price tags attached that won’t be on the MLS.
Here are all the closing costs of being an Ontario buyer:
- Land Transfer Tax and Property Taxes
- Home Inspection Fee
- Home Insurance, Title Insurance, and CMHC Mortgage Insurance
- Legal Fees
- GST/HST on New Builds
- Property Appraisal Fee
- Government Registration Fees
- Land Survey Fee
- Utility Initialization Fees
1. Land Transfer Tax and Property Taxes
We’ll start with the good news. First-time home buyers get this back in the form of a land transfer tax refund! In order to claim it, you (or your spouse) cannot have owned a home anywhere in the world. You can also use our land transfer tax calculator to help.
However, if this isn’t your first rodeo, this is a closing cost you can’t avoid. There are lots of free resources (such as a closing cost calculator) to figure out the amount based on your home purchase price, and we can help you calculate it too.
To give you an idea, on a $600,000 purchase, that adds up to $8,475. Double if you’re buying in Toronto.
Another tax to keep in mind is your property taxes. These range from several factors, but you’ll know what you’re getting into because the information will be on MLS. Often, these can be monthly fees built into your mortgage amount, but you can choose to pay separately as well.
Your property tax is not, as some believe, based on your home’s purchase price, but is instead based on the market value of your home. The property tax is calculated once a year by the municipality in which you live, and typically is in the range of 0.5 to 2.5%.
2. Home Inspection Fee
Unless you’re waiving a home inspection condition, this typically costs $500+. This is one of the best investments a home buyer can make, as it could save you from even higher bills in the future. Older homes have all sorts of hiddens costs, and the previous property owner may not be aware of them, or choose not to disclose them if they are.
Your inspector will tell you what needs to be done now and what can wait. With that knowledge, you can decide how you want to budget for these upcoming maintenance items or if it’s better to move onto the next home. If you’re buying a home with a septic tank, you’ll need to pay extra for the septic/water testing.
3. Home Insurance, Title Insurance, and CMHC Mortgage Insurance
Most lenders require proof of home insurance before agreeing to lend you a chunk of change. They want to ensure the loan will be paid back if something were to happen. Before finalizing the deal, ensure you have the extra set aside. You can compare rates online ahead of time or ask your Realtor or real estate lawyer for some fantastic options.
Some, but not all, lenders require Title Insurance. Even though it’s not always mandatory, it’s a $400 fee for a lifetime of peace of mind. Well, the lifetime of you with that property anyway. The last thing you want is to find out there is a lien against the home or losses due to title defects. This could mean the lot size or even that you own the home at all. Did you know Wasaga Beach is one of the most noted towns for real estate fraud? It really happens!
If you plan on putting more than 20% down on your home, you can skip to the next part. Putting anything less, CMHC insurance is going to be a part of your plan. It’s insurance for the lender, so if you ever default on your mortgage, they can still get paid. While this could look like thousands of dollars, it’s built into your mortgage and paid off over the term of your loan.
The not-so-wonderful part of it – you’ll need to pay Provincial Sales Tax (PST) on these premiums. Usually, only 8% of that insurance fee.
4. Legal Fees
Don’t forget about the legal and administrative costs! Legal fees vary, and are another closing cost that can catch home buyers by surprise. Working with a real estate lawyer that knows the area inside and out is ideal.
Processing the sale and ensuring everything is done correctly can cost $700-$1500+ in some cases. On or near closing day, your real estate lawyer will also go over your Statement of Adjustments. This is basically going over money that has been paid already by the seller, so you need to pay them back.
For example, if the previous property owner paid the property taxes for the year, but your closing date is September 1st, you’ll need to pay them from September-December for the fee they already covered. This could also apply to utilities and rental items in the home.
5. GST/HST on New Builds
One closing cost that may not be apparent is the GST/HST. Buying a new build home or condo will need to have federal goods and service tax (GST) paid on the purchase price—in Ontario this will be a harmonized sales tax (HST) of 13%.
You can either pay this closing cost with cash on closing day, or through your mortgage. If the builder has included the GST/HST in the purchase price, it will automatically be included with your mortgage.
The good news is that if your new home is priced below $450,000 before HST, you may be eligible for the New Housing Rebate, which changes on a sliding scale.
6. Property Appraisal Fee
A property appraisal is a critical step in the mortgage process. Lenders require an appraisal to determine the fair market value of the property you intend to purchase. This assessment ensures that the property’s value aligns with the loan amount. The cost of an appraisal typically falls within the range of $300 to $500.
A professional appraiser conducts a thorough evaluation of the property, considering factors like location, size, condition, and recent sales of comparable properties in the area. This valuation helps safeguard both the buyer and the lender, ensuring that the property is reasonably priced and justifying the loan amount.
7. Government Registration Fees
When transferring property ownership, there are several government fees involved. These fees cover the legal processes and paperwork required for the change of title and registration. They ensure that the transaction is properly documented and recorded.
These fees can vary depending on the jurisdiction and the value of the property. They typically include costs for land title registration, deed transfer, and other legal documentation. It’s crucial to consult with a real estate lawyer or notary to understand the specific fees applicable in your area.
8. Land Survey Fee
A land survey provides a precise measurement and layout of the property’s boundaries. While not always mandatory, it can be a crucial step in ensuring that the property lines are accurate and that there are no boundary disputes.
The cost of a land survey can range from $1,000 to $2,500, depending on factors such as the size and complexity of the property. Investing in a land survey can provide peace of mind and prevent potential legal issues in the future.
9. Utility Initialization Fees
Upon moving into a new property, there will be costs associated with setting up essential utilities. These include water, gas, electricity, and internet services. While these fees are typically not substantial, they are important to budget for.
Utilities may require a deposit or connection fee, and it’s important to contact each provider in advance to understand their specific requirements. Additionally, consider any installation costs for services like internet or cable TV.
Reach Out To A Paul Rushforth Real Estate Agent
Are you thinking about making a move but need help with the bigger-picture finance planning? Worried about having to pay closing costs that you don’t even know about? I would love to help you prepare by showing you different options within your budget. Reach out to the Paul Rushforth team, and let’s make a plan to make your real estate dreams a secure reality.