What Are the Hidden Costs When Buying A Home in Ontario?



    Purchasing a home in Ontario is rewarding for house buyers who have worked and sacrificed to get there. Whether you are a first-time homebuyer or you want to start a real estate investment portfolio, you need to know the hidden costs and unexpected fees that could come up on the closing date.

    You may be thrilled with a property you found on the market but you must remember to budget for the additional costs of buying a house in Canada. Beyond what you have offered to pay for property itself and the services of real estate lawyers in Toronto and real estate itself, there are also taxes, , real estate fees and additional expenses, that may very quickly increase your total expenses by thousands of dollars.

    Here are some of the unexpected fees you may encounter.

    Home Inspection

    You will definitely want a home inspection computed, especially if you’re not physically going to see the property yourself prior to closing it.

    A certified home inspector will visit the house and examine it for unseen damages or defects that the sellers may not be aware of or that may be purposefully concealed. Issues an inspector may discover are major, deficiencies, such as foundation cracks and, building code violations. The average home inspection fee in Ontario is between $300 and $500. However, arranging a home inspection early may save you thousands of dollars in the long run.

    Land Transfer Taxes

    Land transfer tax is payable upon closing on most property acquisitions in Ontario. The exact amount varies by region. There is a provincial and municipal component to the tax.

    Land transfer tax is based on the value of the consideration — your purchase price. The 2022 provincial tax rates are:

    • $0 to $55,000: 0.5%
    • $55,000 to $250,000: 1.0%
    • $250,000 to $400,000: 1.5%
    • $400,000 to $2 million: 2.0%
    • $2 million and above: $2.5%

    For example, if you purchase a $1.5 million property in Ontario, the total provincial land transfer taxes owing will be $26,475.

    There are land transfer tax rebates available for first-time homebuyers. Some homeowners may qualify for a tax refund of up to $8,475 depending on the circumstances.

    On the other side of the coin, there is an additional tax of 20% applied on top of existing land transfer taxes for all purchases and acquisitions of residential property in the Greater Golden Horseshoe of Ontario for individuals who are not citizens or permanent residents of Canada, including foreign corporations and foreign entities. This is the Non-Resident Speculation Tax.

    Mortgage Default Insurance

    Mortgage default insurance is a hidden fees that you may not know much about. This insurance protects the lender – the bank or financial institution that provided your mortgage – from the risk of default.

    In Canada, mortgage insurance is mandatory for any homebuyer with less than a 20% down payment. While this may seem unfair the advantage of this regulation is that it allows buyers who are considered high-risk to obtain lower mortgage rates. The maximum amortization period on insured mortgages is 25 years.

    Please note that in Canada, all homes sold for more than $500,000 require a minimum down payment of 5% for the first $500,000 and 10% for all amounts over $500,000. All homes purchased for more than $1 million are not eligible for mortgage default insurance which therefore requires a homeowner to have a down payment above 20% of the purchase price.

    Real Estate Lawyer Fees

    Retaining a real estate lawyer is not a luxury, it is a necessity. They protect your rights and handle such issues as registering the title and investigating to see if there are any liens on the property. They can offer advice on the purchase and handle land transfer tax payments. You cannot close a transaction without the assistance of a lawyer.

    Other Unexpected Costs To Buying A Home

    • A lender will usually require an appraisal for the property. This is different from a home inspection and ensures the value of the home is not less than the purchase price. The average appraisal cost is likely to be between $300 and $500 depending on the lender and type of the property.
    • Title insurance protects a homeowner from losses that could come from fraud, forgery, liens, encroachments, and the like. The cost for title insurance varies depending on the value and type of home but is often between $300 and $2,000.
    • Building code upgrades. Building code issues normally arise once the transaction is completed. The average basic building code upgrade is $100-$200 per square foot, with inspections and permits also required which must be budgeted for as well. To avoid this expense, be sure to arrange for a home inspection.
    • Breaking an existing mortgage. If you already own a home and want to sell it to finance your next home purchase, if you have to break your mortgage to do it, you could see hidden mortgage fees and penalties amount to thousands of dollars. Consult your mortgage lender for further information on what hidden costs may exist.
    • Moving costs. Moving costs in Ontario can vary depending on the size of the move and the distance. Book your movers well in advance to save on last minute surcharges.
    • Always check with your realtor to see if appliances are included in the purchase price.

    There are many hidden costs when buying home which may come as surprise. Buying a house in Ontario is a big expense and it is imperative to prepare well in advance for the purchase. If you have any questions about the hidden costs of buying a home in Ontario, consult with an experienced real estate lawyer. They’re not only there to conduct searches and aid in preparing and signing the mortgage and purchase agreement.

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