What Are Closing Costs and Who Pays Them?
In this quick Q&A, we break down what closing costs are, who pays them, and why first-time home buyers in Ontario need to plan for more than just their down payment.
Buying your first home is exciting, but the purchase price isn't the only expense to consider. Before you get the keys, there are additional costs involved in completing the transaction.
Understanding these expenses early can help you build a more realistic budget and avoid unexpected financial stress on closing day.
What Are Closing Costs?
Closing costs are the expenses associated with finalizing the purchase of a home.
In Ontario, buyers should generally plan for approximately 1.5% to 4% of the purchase price, although actual costs depend on the property, location, financing and individual circumstances.
For example, on an $800,000 home, that budgeting range would be approximately $12,000 to $32,000, in addition to your down payment.
This is a planning estimate, not a fixed fee. Some buyers will pay less or more depending on their circumstances.
What Closing Costs Should Ontario Home Buyers Expect?
Some common expenses include:
Land Transfer Tax: Ontario buyers generally pay provincial land transfer tax when purchasing a property. Additional municipal land transfer tax applies to properties in Toronto.
Legal Fees: Your real estate lawyer handles the legal work required to complete the purchase, including reviewing documents and registering ownership.
Title Insurance: This helps protect against certain title-related risks, subject to the terms of the policy.
Property Tax and Utility Adjustments: Depending on what the seller has already paid, adjustments may be required at closing.
New Construction Expenses: Buyers purchasing newly built homes may face additional charges or adjustments outlined in their purchase agreement.
Your lawyer can provide a more accurate breakdown based on your specific transaction.
Who Pays Closing Costs in Ontario?
Both buyers and sellers have expenses associated with a real estate transaction, but they are responsible for different costs.
Buyers generally pay expenses related to purchasing the property, including applicable land transfer tax, legal fees, title insurance and closing adjustments.
Sellers typically pay expenses associated with selling the property, including agreed real estate commissions, applicable taxes on those commissions and their own legal fees.
The exact responsibilities depend on the purchase agreement and the circumstances of the transaction.
Are There Rebates for First-Time Home Buyers?
Yes. Eligible first-time home buyers in Ontario may qualify for a provincial land transfer tax refund.
Additional rebates or incentives may also be available depending on the property, location and buyer's circumstances.
These programs have specific eligibility requirements, so it's important to confirm which ones apply before relying on them in your budget.
Plan Before You Start House Hunting
One of the best things you can do before buying your first home is understand the full cost of purchasing it.
Your down payment is only one part of the equation. Knowing what to expect from closing costs helps you establish a realistic budget before you begin searching.
Thinking about buying your first home in Aurora, Newmarket or York Region?
At Kastle Realty Team, we help buyers understand the steps involved in purchasing a home, from setting a budget to preparing for closing day.
Connect with us to learn what to expect before you start your home search.