First-Time Home Buyers: Closing Costs 101 (Part 1 of 3)

For many new entrants, gathering enough funds for a down payment is a huge accomplishment - and a first rite of passage into the real estate market. A next and often-overlooked challenge is to dig deeper to cover a bundle of expenses known as closing costs. Over our next three posts, we'll look at what those costs are, which ones buyers can't avoid and which may be more controllable.

Closing Costs - The Mandatory Ones

  • Land Transfer Tax - In Ontario, tax rates vary from 0.5% to 2.5% for purchases made after January 1, 2017. Certain municipalities add their own land transfer taxes on top. Other taxes may also apply, such as for purchases of vacant property or those made in the Golden Horseshoe by non-residents of Canada. The good news: first-time home buyers may be eligible for a full or partial rebate of the provincial land transfer tax.
  • Mortgage Insurance - So long as your down payment is at least 20% of the sale price, you're off the hook for this cost. But if you're looking for a high-ratio mortgage with a smaller down payment, the law mandates mortgage insurance as protection against the risk of default. Read about mortgage insurance in one of our earlier posts.
  • Harmonized Sales Tax - If you're buying a new-construction home, you'll pay 13% on top of the sale price - no different from an item you'd buy in a store. The good news: Purchases of resale homes are exempt.
  • New Home Warranty - This is another expense applicable to new-built purchases. Since the housing development may not have even broken ground when you bought it, the province requires new-home builders to register for the warranty program. It's administered by Tarion and protects buyers against such issues as builder bankruptcy, major defects or delays in occupancy.

The above are closing costs mandated by the government. In our next post, we'll look at another group of costs that although not required by law, are, by practice, almost impossible to avoid.

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