What to know
- First-time buyers should budget for land transfer taxes, legal fees and closing adjustments before taking possession of a home.
- In addition to Ontario’s Land Transfer Tax, buyers in Toronto must also pay the Municipal Land Transfer Tax, though eligible first-time buyers can claim rebates on both.
- Buyers need a real estate lawyer to complete the purchase, with one realtor recommending budgeting around $2,000 for legal costs.
- One expert recommends getting pre-approved before house hunting and budgeting for additional moving and closing expenses that can quickly add up.
When looking to buy a home, first-time buyers might focus on down payments and mortgage payments, but one Toronto real estate expert says there are other hidden fees they should keep in mind to prepare for the big move.
Buying their first home is usually one of the most important financial decisions of someone’s life, especially in major Canadian cities like Toronto, where the purchase is often a seven-figure investment.
Between financial and decision stress, mortgage approvals, interest rates, down payments, and legal fees, homebuyers might face a lot of pressure when deciding to purchase for the first time, and it’s not always easy to keep up with what you need to be paying for and when.
Read More
Now Toronto spoke with Toronto-based realtor Will Doyle about which significant fees, beyond mortgage and down payments, first-time home buyers should consider before closing on a home.
Down payment and Land Transfer Tax
Buying a home is a long-term investment, and many Ontarians might take decades to pay off their monthly mortgage payments. However, there are some fees they must have on hand before closing.
In Canada, the minimum down payment buyers must provide before closing on a home depends on the full price of the home. For homes under $500,000, the down payment must be at least five per cent of the purchase price. For those between $500,000 and $1.5 million, they must provide five per cent on the first $500,000 of the price, and 10 per cent on the portion above that amount. Meanwhile, those buying a home over $1.5 million need to provide a 20 per-cent down payment.
However, buyers providing less than a 20 per-cent payment, regardless of the required minimum, might be asked by their bank to purchase mortgage insurance. According to Doyle, this extra cost doesn’t need to be provided beforehand, as it is usually included in the monthly down payments.
In addition, Doyle said the amount of cash needed by closing time also includes the Land Transfer Tax, which must be paid in full on the closing date.
This payment is also calculated based on a marginal scale, including 0.5 per cent on the first $55,000, one per cent up to $250,000, 1.5 per cent up to $400,000, two per cent up to $2 million, and 2.5 per cent over $2 million.
In addition, those buying a home in Toronto specifically must also pay a Municipal Land Transfer Tax (MLTT) on top of the provincial Land Transfer Tax. These vary from 4.4 per cent to 8.6 per cent depending on the purchase price.
Doyle says it’s important for buyers to note the difference between a deposit and a down payment. The deposit is a portion of the down payment which needs to be paid within a business day of the offer being accepted. Meanwhile, the rest is paid on closing day.
“The standard rate, for Toronto at least, is about five per cent for the deposit. So, if you’re buying a property for a million dollars and you get an offer accepted, the usual amount for the money that has to be delivered, usually in about one business day, is five per cent; that’s $50,000,” he explained.
Legal fees
Another cost that many first-time homebuyers might often overlook is legal fees.
In Ontario, hiring a real estate lawyer is mandatory, as licensed professionals are the only ones authorized to register a property transfer in the province.
These lawyers will assist the buyer by reviewing the Agreement of Purchase, doing a title and debt search, handling mortgage documents, transferring funds, and registering the property, according to the AG Law Firm.
“I tend to tell clients to budget around $2,000 for lawyers. Most of the time, it’s less than that, but there are some cases that can change how much lawyers cost,” Doyle warned.
Adjustments
Closing adjustments are also a significant part of the cost homebuyers face when closing the deal.
These are pre-paid expenses reimbursements buyers must pay to the seller on closing day, and include condo maintenance, property taxes, and heating fuel.
“In essence, it’s the fairest way for both the seller and the buyer to only pay the carrying cost of the property up until the day that they actually own it. So, you’re not paying for any carrying cost from before closing as a buyer, and the seller isn’t paying for any carrying costs after closing,” he explained.
First-time homebuyers rebates
Although buying a home comes with several costs, Doyle emphasizes that first-time homebuyers can also take advantage of rebates on some of those fees.
For instance, first-time buyers might be eligible for a refund of the entire or part of the provincial LTT. Since 2017, the maximum LTT refund amount in Ontario has been $4,000. In order to qualify for the discount, buyers need to be at least 18 years old and not have owned a home anywhere in the world before the purchase.
Similarly, these buyers might be eligible for a municipal LTT rebate in Toronto, totalling up to $4,475.
There are also several first-time home buyer incentive programs in Ontario, including a full Harmonized Sales Tax (HST) rebate on new homes ending in March 2027.
Read More
Mortgage payments
One of the most obvious costs of homebuying are mortgage monthly payments. But Doyle warns that homebuyers should get pre-approved for a mortgage before they begin to consider properties, which can avoid frustration and trouble down the road.
“One of the worst things to happen is if you just assume what you would be approved for, and you go through the whole process of getting an offer accepted on a property that you want to buy, and then it turns out that the financing actually doesn’t make sense, and you can’t get the approval,” the realtor stressed.
Before getting started on the process, Doyle recommends buyers seek a broker or their bank’s mortgage specialist and do a thorough review of their financial situation.
“It’s just important to do your research ahead of time and be prepared with all the extra costs on top of all the necessary costs you have when buying a property. There’s lots of little incidentals that tend to add up, like movers and boxes and all the little things,” he added.
