What are closing costs?
Closing costs refer to the various legal and administrative costs associated with the sale or purchase of a home. These costs are paid upfront at the time of closing by both the seller and the buyer and vary depending on your municipality and which side of the transaction you are on. Whether you are buying or selling your home, it’s important to take closing costs into account so there are no surprises on closing day.
As a buyer, closing costs can range from 2.5%- 4% of the property purchase price. This guide uses an example, based on the purchase of a $1,000,000 home in Toronto. To calculate an estimate of your closing costs, check out this calculator created by one of our great partner real estate agents.
Home inspection
A home inspection condition is a common clause included by homebuyers in their offer on a home. It allows the buyer to hire an inspector to view the property and, if they find serious issues, it gives the buyer the right to walk away from the purchase without losing their deposit.
In competitive markets, buyers may choose not to include an inspection condition to make their offer more attractive. Similarly, some sellers may even get an inspection done prior to putting the home up for sale and include it with their property listing.
When co-buying with Ourboro an inspection condition is not mandatory, however we do require our co-buyers to have an inspection done on the property within 10 days of an offer being accepted. This allows both you and Ourboro to have a clear understanding of the condition of the home when it was purchased.
| Home inspection | $500* |
Lender Fees
Depending on the mortgage broker and/or lender used for your mortgage, you may be charged an administrative fee. This fee is typically 1% of your mortgage loan.
| Lender Fees | $8,000 |
Land transfer tax
Land transfer tax is only applicable when you acquire property, and specifically, when you purchase a beneficial interest in a property. It is a tax paid to the province when the purchase closes and, if you’re buying a home in Toronto, this tax will also be paid to the municipality.
When you co-buy with Ourboro, while we are not on title with you as owners in the property, we do acquire a beneficial interest when we provide our down payment contribution. So, to ensure we pay our fair share, Ourboro will pay land transfer tax proportionate to our equity interest in the home. This applies to both provincial and municipal taxes. For example, if we have a 50:50 equity split in the home, we would each pay 50% of the total land transfer tax.
If you meet the definition of a first time homebuyer, you can also take advantage of a land transfer tax rebate. Please note, if you do qualify for a rebate, the amount you receive can not exceed the tax you paid.
Provincial land transfer tax
Provincial land transfer tax in Ontario is a marginal tax based on the property purchase price. Each portion of the purchase price is taxed at the rate outlined below:
| Purchase price | Marginal tax rate |
| First $55,000 | 0.5% |
| $55,000.01 to $250,000.00 | 1.0% |
| $250,000.01 to $400,000.00 | 1.5% |
| $400,000.01 to $2,000,000.00 | 2.0% |
| Over $2,000,000 | 2.5% |
If you purchase a property for $1,000,000, the estimated land transfer tax would be $16,475, calculated as follows and paid according to our equity split in the home.
| $55,000 x 0.5% | $275 |
| ($250,000 – $55,000) x 1% | $1,950 |
| ($400,000 – $250,000) x 1.5% | $2,250 |
| ($1,000,000 – $4000,000) x 2% | $12,000 |
| TOTAL | $16,475 |
In this example, if we had a 50:50 equity split in the home, we would each pay $8,237.50.
If you’re a first-time homebuyer, you can take advantage of Ontario’s land transfer tax rebate, up to a maximum of $4,000. To be eligible for this rebate the following conditions must apply:
- You must be a Canadian citizen or permanent resident of Canada,
- You must be 18 years or older,
- You must occupy the home within 9 months of purchase,
- You cannot have owned a home or interest in a home anywhere in the world,
- Your spouse cannot have owned a home while being your spouse,
- If the home is newly constructed, it must be eligible for home warranty,
- Homebuyers must apply for the refund within 18 months of purchase,
Municipal land transfer tax
If you are purchasing a home in Toronto, you will also be subject to the City of Toronto’s municipal land transfer tax in addition to Ontario’s. This land transfer tax is calculated the same way as the provincial tax and also has a similar rebate available, up to a maximum of $4,475.
| Land transfer tax (Ontario) | $16,475 |
| Land transfer tax (Toronto) | $16,475 |
| Land transfer tax rebate (Ontario) | ($4,000) |
| Land transfer tax rebate (Toronto) | ($4,475) |
| TOTAL | $24,475 |
Property insurance
Home insurance helps protect you, your home, and your home’s contents, against losses. Your coverage and rates will depend on the type of home insurance policy you choose and your location.
On average, Ontarians pay approximately $1,250 per year for home insurance, or approximately $104 per month.
| Property insurance | $104/month* |
Legal fees
Conveyance lawyers, also known as real estate lawyers, are responsible for protecting your interest and ensuring that ownership of the property is transferred to you from the seller. Some of their specific tasks include reviewing the legal documents pertaining to the property, communicating with your mortgage lender, arranging for title insurance, and ensuring all legal and financial conditions are met to close the transaction.
When co-buying with Ourboro, we also require buyers to obtain independent legal advice (ILA). ILA protects our co-buyers by having an outside third-party explain all of the legal documentation before signing, ensuring our co-buyers fully understand the terms of our co-ownership.
| Conveyance lawyer | $1,500* |
| Independent legal advice (required when co-buying with Ourboro) | $500* |
Disbursements
While transferring ownership of the property your conveyance lawyer will pay for a few expenses on your behalf. This can include costs for title insurance, mortgage registration, tax certificates, and various other administrative expenses. These costs are separate from the lawyer’s professional fees and will be repaid through your closing costs.
| Disbursements | $1,000 |
Adjustments
If the seller has paid for any services that you will now enjoy as the new owner, you will need to reimburse the seller for these costs on closing day. This could include things like property taxes, prepaid utility bills, or condo fees. Your conveyance lawyer will look for these costs and communicate them to you when you close on the home, but it’s important to keep in mind so there are as few surprises as possible.
| Adjustments | $400 |
Moving expenses
When you’re calculating your closing costs, it’s important to keep moving expenses in mind. These can include everything from preparing to leave your previous home, physically moving yourself and your belongings, to making any updates or renovations to your new home.
Will you need to hire a moving company? Will you rent storage space for any of your belongings? Do you want to make any immediate repairs to your new home before settling in? These are all things you should think about, and put aside funds for, before buying your new property.
| Moving expenses | $1,000 |
Summary
Closing on your home is an exciting process, ultimately ending in you getting the keys to your new home!
Now that you have a better understanding of the types of closing costs you can expect to see when you’re getting ready to close on your home, you can begin to prepare and set the necessary funds aside.
| Closing cost | Estimated price |
| Home inspection | $500 |
| Lender fees | $8,000 |
| Land transfer tax (Ontario) | $16,675 |
| Land transfer tax (Toronto) | $16,475 |
| Land transfer tax rebate (Ontario) | ($4,000) |
| Land transfer tax rebate (Toronto) | ($4,475) |
| Property insurance | $104/month |
| Legal (Conveyance lawyer) | $1,500 |
| Legal (Independent legal advice) | $500 |
| Disbursements | $1,000 |
| Adjustments | $400 |
| Moving Expenses | $1,000 |
| TOTAL | $36,579* |
Interested in seeing how much Ourboro may be able to contribute towards your down payment? Get started and see how shared ownership can help you buy the home you want, sooner.
