Buying a home is one of the most exhilarating experiences of your life, especially when it’s your first. It starts with a vision; you browse listings online, and each one is more alluring than the next. When you visit the right house in person, it’s so easy to fall in love. You can’t wait to make an offer to make this perfect oasis your permanent home! Ideally, your home-buying experience would be this seamless. 

However, today’s market is challenging, and there’s a little more to the process than meets the eye. One of the most significant obstacles is the cost of buying a home. Toronto is one of the most sought-after cities in the world, and real estate here tends to come with a price. Even then, the listing price only tells part of the story. Let’s take a look at all the hidden costs when buying a house so that there are no surprises or unforeseen barriers that stand between you and your dream.

What’s In the List Price?

A successful purchase begins even before understanding your closing costs. You’ll want to pull back the curtain on the intricacies and nuances of the housing market. One of these nuances is how homeowners and their agents determine a listing price. For example, does the following scenario sound familiar?

You’re scrolling through online listings as you sit at your kitchen table one morning. In between coffee sips, you find a home that takes your breath away. Even better, it’s comfortably in your price range, maybe even a little below market value. But is it too good to be true? Depending on the market, it could be.

Listing agents have different pricing strategies they use to generate maximum interest. So when you see a price that gets you excited, chances are that other potential buyers are feeling the same. And that was the plan all along: to get multiple buyers interested and competing with each other, with the end goal of earning more from the sale, not less. 

Before beginning your home search, even before opening up your web browser to see what’s out there, you will want to determine a clear budget that you will not exceed under any circumstances. Otherwise, your emotions could run away with you and cause you to overspend. Just knowing this makes you a more informed and savvy buyer. And now that you know that there’s more to the list price than you previously thought, let’s take a look at some of the other closing costs you should be aware of. 

Looking for more resources to find and buy an ideal home in Toronto? The following posts will help:

• What Is Fractional Ownership in Toronto?
• Purchasing Your First Condo: 5 Things To Know
• What You Need To Know About Buying A House In A Changing Market

Land Transfer Taxes

Whether you’re buying new shoes, gas, or a house, the government always wants their share. In real estate, this comes in the form of land transfer taxes, and it’s one of the most significant closing costs of buying a home.

When buying in Toronto, you get hit twice as hard because there is both a municipal and provincial land transfer tax. What are you up against?

Let’s say you are buying a townhouse in Toronto for $950,000. The provincial land transfer tax works out like this:

Now, because Toronto also has a municipal tax, you will have to double this amount to $30,950, which is no small amount for any home buyer. First-time buyers have some relief in the form of a rebate of up to $4,000 on both taxes, for a total of $8,000 in savings. However, this is one cost that you cannot roll into your mortgage, which means you will need to pay it upfront on your closing date.

New Luxury Land Transfer Tax

The prospect of buying a luxury home in Toronto has also become more expensive. In September 2023, the Toronto Council approved a measure to impose a new tax on all homes over $3 million, which would come into effect as of January 1, 2024. Here is how this new tax works:

• 3.5% on homes valued from $3 million to $4 million
• 4.5% on homes valued from $4 million to $5 million
• 5.5% on homes valued from $5 million to $10 million 
• 6.5% on homes valued from $10 million up to $20 million 
• 7.5% on homes valued on all homes valued at more than $20 million

Does your purchase depend on the successful sale of your existing home? If so, here are some resources that will help:

• Is Staging Your House to Sell Still a Good Idea?
• Selling for Top Dollar in Toronto as the Market Shifts
• What You Must Disclose When Selling Your Toronto Home

Other Closing Costs to Expect

Most real estate experts suggest having 2-5% of the purchase price available when buying a standard home in Ontario. Obviously, if you are buying a luxury property, this percentage will be higher. It is also a good idea to cushion your budget to allow for the unexpected. Standard closing costs include:

• Legal fees: A real estate lawyer will examine all paperwork and run a background search for any liens or anything that may interfere with a seamless transfer of ownership.
• Title insurance: Most lenders require insurance to cover disputes over the title. Being insured properly can also protect you from title fraud.
• Mortgage insurance: If your down payment is less than 20%, you will need mortgage insurance to protect the lender in case of default.
• Appraisal fee: Before closing, the lender often requires an official appraisal to ensure an accurate reflection of the value of the home. Sometimes, the lender will cover this fee. If not, it gets passed on to you, the buyer.
• Moving costs and other expenses: Though not an official closing cost, you will need to be prepared for the cost of hiring movers, hooking up utilities, and making any repairs needed upon taking possession.

Are you ready to begin your home search in Toronto? We are here to guide you every step of the way through this fast-changing market. Contact us at 416.443.0300 or  ERICA@ERICAREDDY.COM today with any questions or to get started. 

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