Many first-time home buyers may be ignorant of the costs involved in purchasing a property in Ontario. However, most know that they need to deposit a down payment of at least 5% of the property’s purchase price.
However, the total cost of purchasing a home includes other expenses that you may not have considered. This site offers you step-by-step instructions to help you fully understand what you might have to pay for and plan ahead of time.
What Are Closing Costs?
When ownership of a property is officially transferred from the seller to the buyer is referred to as “close.” Apart from the property’s purchase price, there are other fees that the buyer needs to pay on the deal closing day.
The one-time fees you must pay in full at purchase are known as closing costs. In other words, the closing costs cannot be a part of the loan.
Pro Tip: Closing costs should be budgeted for at least 1.5% to 4% of the purchase price.
We need to understand different types of closing costs.
Legal Fees
You would require the services of a real estate lawyer for the purchase or sale of a home, and they are undoubtedly expensive. Typically, a lawyer costs anywhere from $500 to $1,000.
Lawyers run the essential title searches and notify any potential concerns to ensure that your legal paperwork is appropriately completed and submitted. They also work with your creditor to execute the financial transaction.
Property Transfer Rights
When you buy a house, you may be required to pay a real estate transfer tax in your province. The fee is added to the final bill when the buyer takes possession.
The percentages might vary from province to province, so you should double-check before making a purchase. Buyers must also pay the Ontario land transfer tax (OLTT) and Toronto land transfer tax (TLTT).
The amount is determined as a percentage of the property’s purchase price, which typically ranges from 0.5% to 2.5%.
Pro Tip: Land transfer tax credits are available to first-time home buyers in Ontario to help them save money.
Building Inspection Fees
You should never pledge to buy a property before getting it examined by a specialist. An inspector can all find moisture, plumbing, and electrical defects or inadequate insulation during a visit.
As a bonus, they can advise you what repairs need to be made after moving in. For example, a standard inspection might cost anywhere from $250 to $500.
Top Reasons for a Buyer to Back Out
Terminating the purchase contract after final inspection causes headaches for both buyers and sellers. While buyers may face legal action, sellers would be left in a difficult position to find another buyer willing to purchase the property.
There are several reasons for buyers to back out before closing the purchase deal:
1. Second-Thoughts at the Last Minute
Most property deals are usually cancelled at the last minute, just before closing. Buyers may get cold feet calculating the interest, taxes, mortgage, maintenance costs, and their future financial well-being. Though this may happen even early in the process, all the apprehension will weigh them down at the last minute.
2. Another Tempting Deal
Given the plethora of options in the Canadian real estate market, buyers often place their bets on different properties. If a better bargain with a lower interest rate comes up, buyers bid the previous agreement goodbye and cancel it at the last minute.
3. Contract Contingencies
Most deal agreements include contingencies, which are terms and conditions that should be met within a stipulated time. Some common examples of contingencies in a property contract are:
- Appraising the property at an acceptable value
- The property passing the inspection by the buyer
- The sale is contingent based on the buyer’s ability to secure funds
Deadlines follow all the contingencies. For instance, a buyer needs to complete a property inspection within ten days if a home inspection contingency is written in the contract. If the buyer discovers an issue during the inspection and offers the seller a notice of disapproval within ten days, the contract can be legally cancelled.
4. Obstacles iBn Financing
Last-minute financial issues are widespread and one of the primary reasons for terminating the contracts. According to the National Association, as much as 8% of the buyers back out of a property deal due to issues related to obtaining finance.
A loan pre-approval letter from the seller may not always guarantee finance. Buyers need to be open to all available funding sources rather than just going with the seller’s option to avoid last-minute hiccups.
5. Issues During Property Inspection
Before closing a property deal, the buyer’s final step is an inspection. The assessment acts as a last opportunity for a buyer to confirm the property’s condition and ensure no unforeseen repairs.
The National Association of Realtors survey reveals that around 10% of the contracts are terminated after the final property inspections.
Can a Buyer Back Out Before Closing the Deal?
A buyer withdraws from a property deal due to the loss of interest or problems related to the price and other associated costs. Such scenarios can be typically seen in a buyer’s market compared to a seller’s market. A seller seldom walks away from a property deal.
YES! On closing day, you can back out of a home purchase agreement. However, this can only happen if neither party has signed the property purchase agreement.
To back out of a contract if both the buyer and seller have signed it becomes more difficult. Both are legally bound by it. When you sign a purchase agreement, it’s not impossible to cancel it. However, it would help if you were careful because some money could be lost.
Buyers of newly purchased property in Ontario have a ten-day cooling-off period to cancel their purchase agreements. They may lose their deposits or even more as a result of this.
These factors are critical in assisting you in your efforts to become a legally registered homeowner and move into your new property. Knowing about them can also help you in making better financial decisions.
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