The price on the listing is not the price you pay

Every buyer budgets for the purchase price. Most also account for the deposit, which their solicitor holds in trust until closing. What catches people off guard is the collection of costs that arrive on closing day, on top of the purchase price, with no room to negotiate them down.

This is not a reason to panic. It is a reason to plan. If you know these costs exist before you start looking, you can build them into your budget from the beginning rather than scrambling to find the money in the final week.

Land transfer tax

Ontario charges a provincial land transfer tax on every property purchase. The tax is calculated on a sliding scale that increases with the purchase price. If the property is within the City of Toronto, there is an additional municipal land transfer tax on top of the provincial one. The two combined can add tens of thousands of dollars to your closing costs, depending on the purchase price.

First-time buyers may qualify for rebates on both the provincial and municipal land transfer tax. The eligibility rules and rebate amounts are set by the province and the city respectively, and your solicitor will confirm what applies to your situation. Do not assume you qualify. Ask, and get the answer in writing before you make an offer.

Legal fees and disbursements

Your solicitor handles the title search, the registration of the transfer, the mortgage documents if you are financing, and the trust account that holds your deposit. Their fee covers the legal work. Disbursements are the out of pocket costs they pay on your behalf during the process, things like title insurance, registration fees, and courier charges.

Title insurance is not optional if you have a mortgage. Your lender will require it. It protects the lender against title defects, and most policies also protect you. The cost is a one-time premium paid at closing, typically a few hundred dollars.

Get a quote from your solicitor early. Not after you have made an offer. Before. The quote should include both the fee and the estimated disbursements so you are not surprised on closing day.

Home inspection

A home inspection is not a closing cost in the strict sense because you pay for it before closing, usually during the condition period. But it is money you spend as part of buying, and it is worth budgeting for.

A standard inspection on a detached house in the GTA runs several hundred dollars. Older homes, larger homes, or homes with wells, septic systems, or pools may cost more. The inspection report is yours regardless of whether the deal closes, so if you walk away, the cost stays with you.

Adjustments

On closing day, your solicitor calculates adjustments between you and the seller. These cover prepaid expenses that the seller has already paid past the closing date. Property taxes are the most common. If the seller has paid the full year's taxes and you are closing in July, you reimburse them for the portion covering August through December.

Utility deposits and prepaid services work the same way. If the seller has a rented water heater or furnace, confirm whether that contract transfers to you or whether you need to arrange your own. Rental contracts that transfer mean you take over the payments, and that is a recurring cost, not a one-time one.

Mortgage insurance

If your down payment is less than 20 per cent of the purchase price, your lender is required to insure the mortgage through CMHC, Sagen, or Canada Guaranty. The insurance premium is calculated as a percentage of the mortgage amount and is usually added to the mortgage itself, so you do not pay it out of pocket on closing day. But it does increase your total borrowing, your monthly payment, and the interest you pay over the life of the loan. Ask your mortgage broker to show you the numbers both ways, with and without insurance, so you understand the real difference.

What to do with this list

Add it up before you start looking, not after you find something you want. Your mortgage pre-approval tells you what the lender will lend. It does not include closing costs. If you are approved for a certain amount and your closing costs are going to run into the tens of thousands, that money needs to come on top of your down payment, not instead of it.

Your solicitor, your mortgage broker, and your agent should all be able to help you estimate these numbers for your specific price range and situation. Ask all three. If the estimates are wildly different, that tells you something worth knowing before you go any further.

If you want to walk through the numbers for your situation, call me at 416-560-4983.