Everything You Need to Know About Ontario Closing Costs and First Time

You have probably represented many first time homebuyers. First time homebuyers are in a unique position because, depending on where they buy, they could have the opportunity to benefit from significant tax breaks. 

Closing costs can be challenging because there are so many of them - but fortunately for you, if you are representing a first time homebuyer, their closing costs won’t reach the level of someone who has already owned a home in Ontario.

Here is a little summary of closing costs in Ontario and first time homebuyer tax credits and rebates.

1. Legal fees and disbursements: if there is a mortgage to be registered the legal fee and disbursements will be greater.
2. Insurance: your client will need fire insurance, and if there is a mortgage, they should look at mortgage insurance and possibly life insurance too.
3. Property tax: if there is an overpayment on the tax bill at the time you buy, you will have to repay the amount on closing. Also, if your client is getting a mortgage and the mortgage will be collecting their tax payment monthly, there may be a property tax holdback of 3-6 months that will also have to be paid on closing.
4. Appraisal: if the lender has requested an appraisal, your client can expect to pay $300-$400 if the lender has not agreed to pay for it.
5. Home inspection: this could range anywhere from $400 and upward depending on the company.
6. Interest adjustment: there will be an interest adjustment applied from the date of closing to the date of first payment date, this will have to be paid on closing.
7. Land transfer taxes: these can get complicated with all the rebates and exemptions available.

In Ontario your client will have to pay land transfer tax equal to:

• 0.5% of the value of consideration for the transfer up to and including $55,000.
• 1% of the value of the consideration which exceeds $55,000 up to and including $250,000.
• 1.5% of the value of the consideration which exceeds $250,000.
• 2% of the amount by which the value of the consideration exceeds $400,000 for land that contains at least one and not more than two single family residences.
• Check here for more details: http://www.fin.gov.on.ca/en/tax/ltt/rates.html.
• If the buyer lives in Toronto:

 o 0.5% of the value of consideration for the transfer up to and including $55,000.

 o 1% of the value of consideration from $55,000.01 to $400,000.00.

 o 2% of the value of consideration over $400,000.00.

Now here is where first time homebuyers get a break:

• In Ontario, first time homebuyers are entitled to a rebate on their land transfer tax up to a maximum of $2,000.00:

 o http://www.fin.gov.on.ca/en/refund/newhome/ 

 o http://www.fin.gov.on.ca/en/bulletins/ltt/1_2008.html 

• In Toronto, first time homebuyers, in addition to the Ontario tax rebate are entitled to a rebate on their Toronto land transfer tax of up to $3,725.00:

     o http://www.landtransfertax.com/first-time-homebuyers-rebates. 

     o The above 2 tax rebates total big bucks for your client!

In addition to these rebates, and aside from first time homebuyers, you have some other clients who stand to benefit from land transfer exemptions as well. According to this publication by Schwartz Law, these exemptions include:

• Transfers between spouses
• Transfers where there is no consideration (this has many conditions) 
• Transfers of land between affiliated corporations
• Transfers of land to a family business corporation

• Of course, all of the above have some conditions so you are best to speak with a real estate          lawyer to find out if your client qualifies

Ok, so back to first time homebuyers - in addition to all the first time homebuyer rebates that exist, there are also first time homebuyer tax credits. There is a tax credit for certain first time homebuyers that acquired a qualifying home after Jan 2009. You can find complete details here to see if your client qualifies: http://www.cra-arc.gc.ca/gncy/bdgt/2009/fqhbtc-eng.html. 

We have to remember that clients, especially first time homebuyers do not know as much as you about real estate. Many times people simply miscalculate their closing costs, and when this happens the result in closing could surprise - but this is usually not the best scenario. The best way to avoid any kind of a surprise on your closings is to make the effort to know more, learn more about LTT rebates and credits. Also investing in tools that you can use to investigate applicants and properties like GeoWarehouse can be very useful.

For more about how to help your clients save big bucks on closing, or to get the most information available, please visit www.geowarehouse.ca.