When you are buying a home, you will hear of “CLOSING COSTS” as extra costs that you will incur as a home buyer in Ontario. Be sure to set aside 1.5% to 2.0% of your purchase price, to cover these costs.
Here is a detailed description of these additional costs and what you should likely set aside as you budget for this very important purchase decision.
1. Land Transfer Tax or Property Transfer Tax: this is the largest portion of your cost to purchase a home, whether it is a newly constructed home, or a resale property, you will be required to pay this tax to Ministry of Revenue in Ontario. The tax is calculated based on the fair market value of the property, using a certain formula.
Here is how the Land Transfer Tax is calculated for a property purchased in Ontario:
The first $55,000 is taxed at 0.5%
The next $195,000 is taxed at 1%
The next $150,000 is taxed at 1.5%
And the remaining $250,000 is taxed at 2%.
If you decide to purchase a property in Ontario, and within the City of Toronto, you will be required to pay an additional tax, called the Toronto Municipal Land Transfer Tax and this is calculated as follows:
The first $55,000 is taxed at 0.5%
The next $345,000 is taxed at 1%
And 2% on the entire portion over $400,000.
You can find the Land Transfer Tax calculations on the following websites:
Ontario Ministry of Revenue Land Transfer Tax:
http://www.rev.gov.on.ca/en/tax/ltt/faq_calculating.html
City of Toronto Municipal Land Transfer Tax:
http://www.toronto.ca/taxes/mltt.htm#rates
2. 8% PST: If your down payment is less than 20%, your mortgage will be insured by either CMHC or Genworth. You will be required to pay an 8% provincial sales tax (PST) on the mortgage insurance premium amount.
For example, if your mortgage insurance premium is $8,000, you would be required to pay $640.00 as the 8% sales tax portion.
3. Appraisal: If you are purchasing a home with greater than a 20% down payment, you may required to pay for an appraisal of your home. An appraiser is required, by the lender, because it provides the lender with a professional valuation of the real and true value of the property. Note that if you purchase a home with less than 20% down payment, there is no charge for an appraisal.
Note that the bank, lender or mortgage broker, that is arranging your mortgage financing will ensure the appraisal takes place in co-ordination with the realtor(s) representing the buyer and the seller.
As a buyer, there is no need to arrange this on your own.
Banks and lenders only authorize certain appraisers to complete these appraisal reports for them and the appraisal is conducted using one of the appraisers on the lender’s approved appraiser list. An appraiser will provide a professional valuation of the property being purchased and this original signed report is then passed to the lender for review. The cost for a residential appraisal can be in the range of $250 - $500 (a larger home with more square footage will cost you more).
4. Property and Fire Insurance Coverage. You will need to obtain fire insurance coverage on the home and the coverage must cover at least the replacement value of the home. Note that you should have insurance coverage in place and it should start on the day you take possession of the home. An insurance policy can cost you from $40.00 to $70.00 per month.
5. Home Inspection: When you make an offer on a home, you will want to have it inspected by a professional home inspector. The inspector will carefully go through the structural aspects of the home to review things like plumbing, heating, cooling, the roof, the foundation and will identify anything that they observe which might need to be improved or repaired, within what timeframe and even provide a priority list. The inspector documents these observations in a detailed report/booklet for the interested buyer. The cost for an inspection can be anywhere from $300 to $500.
6. Tax on newly constructed homes.
If you are purchasing a newly constructed home, you will need to also pay GST. For those who purchase a new home up to $400,000 will be required to pay GST. Those who purchase a home over $400,000 will now be required to pay GST and PST (now combined and called the Harmonized Sales Tax – HST) which is equal to 13%. The following table was extracted from the Ontario Ministry of Revenue website.
Home Purchases
|
|
GST-taxable before July 1, 2010 |
PST-taxable before July 1,2010 |
Is there a change to the amount of tax payable under the HST? |
|
New Homes up to $400,000 |
5% |
No PST |
|
|
New Homes over $400,000 |
5% |
No PST |
|
|
Resale Homes |
No GST |
No PST |
No HST |
|
Real Estate Commissions |
5% |
No PST |
Yes (changes to 13%) |
** New homes purchased as primary residences, valued at $400,000 or more will be eligible for the maximum new housing rebate of $24,000.
Note that home buyers purchasing a newly constructed home, as their primary residence, over $400,000 may be eligible for a rebate up to a maximum of $24,000. The details on this rebate are explained at the following website:
http://www.rev.gov.on.ca/en/notices/hst/04.html
7. Legal and disbursement: You will need a lawyer who will help you with the purchase transaction. The lawyer will search title, review mortgage terms with you, and finalize all closing details. It may cost you between $1,000 to $2,400
8. Closing Adjustments: An estimate will be made for closing adjustments for bills that the seller may have prepaid such as property taxes, utility bills (heating, hydro and water) as well as other possible charges (like condo/maintenance fees). Note that any bills that arrive after the closing date become the buyer’s responsibility. This is also handled by the lawyer, and those amounts can range from $0 to $1,000 depending on what the lawyer discovers on the search.
9. Title Insurance: Most lenders will accept title insurance in lieu of the physical survey. The title insurance will protect the buyer from unusual instances of fraud, forgery, title defects or survey issues. Title insurance can be purchased at $200 to $250 and this is a one-time fee on closing.
10. Interest Adjustment: This is the cost of any interest accrued between the actual closing date and the first mortgage payment date. The Interest Adjustment could be anywhere from $0 to $1,000 depending on the closing date and the payment frequency of the mortgage).
11. Estoppel Certificate: This certificate is only required if you are purchasing a condo unit. The document provides information regarding a condo’s financial and legal status. This document usually costs around around $80 - $100.
This article written by Elizabeth Blair on August 25, 2010. Elizabeth is a Licensed Mortgage Agent with Mortgage Edge in Richmond Hill, Ontario. Elizabeth services mortgage clients in Mississauga and all over the Greater Toronto area.
You can contact Elizabeth directly by phone at (905) 510-5785
by email at eblair@mortgageedge.ca
or you visit any of her websites at:
www.missmortgage.ca
www.burlington-mortgage.ca
www.oakville-mortgage.com
www.streetsville-mortgage.ca
Elizabeth is licensed with the Financial Services Commission of Ontario and is also a Member of IMBA (the Independent Mortgage Brokers Association of Ontario) www.imba.ca
Lic # M08005880 / Brokerage Lic # 10680
Head office is located at: 15 Wertheim Court, Suite 210, Richmond Hill, Ontario, Canada.
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