Purchasing property in Ontario, Canada, involves several key steps. Here’s an overview to help you navigate the process and avoid scams:
Step 1: Assess Your Needs and Budget
- Decide on the type of property (condo, house, land, investment property).
- Get pre-approved for a mortgage to determine your budget.
- Factor in closing costs (usually 3-5% of the purchase price) and ongoing costs like property taxes and maintenance.
Step 2: Hire a Real Estate Agent
- Engage a licensed real estate agent who is a member of the Ontario Real Estate Association (OREA).
- They can provide market insights, access to listings, and help with negotiations.
Step 3: Search for a Property
- Use platforms like Realtor.ca or local MLS listings.
- Consider location, amenities, property condition, and proximity to schools or transit.
Step 4: Make an Offer
- Submit a formal Offer to Purchase (Agreement of Purchase and Sale).
- The offer includes:
- Purchase price
- Deposit amount (typically 5% of the purchase price)
- Conditions (e.g., financing, home inspection, or sale of your current home).
- Once accepted, both parties sign the agreement to formalize the sale.
Step 5: Conduct a Home Inspection
- Hire a certified home inspector to evaluate the property’s condition.
- Use the inspection report to negotiate repairs or adjust the purchase price, if needed.
Step 6: Finalize Financing
- Confirm your mortgage with a lender.
- Submit all required documents, including proof of income, identification, and property details.
Step 7: Hire a Lawyer (Mandatory in Ontario)
- Ontario requires a real estate lawyer to:
- Conduct a title search to ensure the property is free of liens or disputes.
- Review and finalize the purchase agreement.
- Facilitate the transfer of ownership.
Step 8: Pay the Deposit and Close the Sale
- Pay the deposit, typically held in a trust account.
- Your lawyer coordinates the payment of the remaining balance and closing costs on closing day.
Step 9: Pay Land Transfer Tax
- Ontario charges a Land Transfer Tax based on the purchase price:
- 0.5% on the first $55,000.
- 1% on $55,000 to $250,000.
- 1.5% on $250,000 to $400,000.
- 2% on amounts above $400,000.
- In Toronto, an additional municipal land transfer tax applies.
- First-Time Homebuyer Rebate:
- Eligible first-time buyers can receive a rebate of up to $4,000.
Step 10: Take Possession of the Property
- On the closing date, your lawyer registers the transfer of ownership, and you receive the keys to your new home.
How to Avoid Scams in Ontario
- Verify Property Ownership:
- Have your lawyer confirm the title is legitimate and clear of liens.
- Beware of Unlicensed Agents:
- Work only with agents licensed by the Real Estate Council of Ontario (RECO).
- Avoid Off-Market Deals:
- Ensure the property is listed on reputable platforms or through verified agents.
- Conduct Inspections:
- Never skip a home inspection to ensure there are no hidden structural or safety issues.
- Review Contracts Carefully:
- Have your lawyer review all agreements before signing.
Costs Involved in Ontario Property Purchase
- Deposit: 5% of the purchase price.
- Legal Fees: $1,500–$3,000 for lawyer services.
- Land Transfer Tax: Varies based on property value and location.
- Mortgage Insurance (if applicable): Mandatory if the down payment is less than 20%.
- Home Insurance: Required before closing.
- Closing Costs: 3-5% of the purchase price, including legal fees, title insurance, and adjustments.
What is a minimum down payment
A down payment is the amount of money you put towards the purchase of a home. Your lender deducts the down payment from the purchase price of your home. Your mortgage covers the rest of the price of the home.
The minimum amount you need for your down payment depends on the purchase price of the home.
If your down payment is less than 20% of the price of your home, you’ll typically need to buy mortgage loan insurance.
| Purchase price of your home | Minimum amount of down payment |
|---|---|
| $500,000 or less | 5% of the purchase price |
| $500,000 to $1.5 million | 5% of the first $500,000 of the purchase price10% for the portion of the purchase price above $500,000 |
| $1.5 million or more | 20% of the purchase price |
If you’re self-employed or have a poor credit history, your lender may require a larger down payment.
Normally, the minimum down payment must come from your own funds. It’s better to save for a down payment and minimize your debts.
Example: How to calculate your minimum down payment
The calculation of the minimum down payment depends on the purchase price of the home.
If the purchase price of your home is $500,000 or less
Suppose the purchase price of your home is $400,000. You need a minimum down payment of 5% of the purchase price. The purchase price multiplied by 5% is equal to $20,000.
If the purchase price of your home is more than $500,000
Suppose the purchase price of your home is $600,000. You can calculate your minimum down payment by adding 2 amounts. The first amount is 5% of the first $500,000, which is equal to $25,000. The second amount is 10% of the remaining balance of $100,000, which is equal to $10,000. Add both amounts together which gives you a total of $35,000.
What is mortgage loan insurance
Mortgage loan insurance protects the mortgage lender in case you can’t make your mortgage payments. It doesn’t protect you. Mortgage loan insurance is also sometimes called mortgage default insurance.
If your down payment is less than 20% of the price of your home, you’ll typically need to buy mortgage loan insurance.
Your lender may require that you get mortgage loan insurance, even if you have a 20% down payment. That’s usually the case if you’re self-employed or have a poor credit history.
Mortgage loan insurance isn’t available if:
- the purchase price of the home is $1 million or more
- the loan doesn’t meet the mortgage insurance company’s standards
Your lender coordinates getting mortgage loan insurance on your behalf if you need it.
Cost of mortgage loan insurance
The fee you pay for mortgage loan insurance is called a premium. Mortgage loan insurance premiums range from 0.6% to 4.5% of the amount of your mortgage. Your premium depends on the amount of your down payment. The bigger your down payment, the less you pay in mortgage loan insurance premiums.
Find premiums based on the amount of your mortgage:
You may pay your premium by adding it to your mortgage or with a lump sum up front. If you add your premium to your mortgage, you pay interest on your premium. The interest rate is the same rate as you’re paying for your mortgage.
Ontario, Manitoba and Quebec apply provincial sales tax to mortgage loan insurance premiums. Your lender can’t add the provincial tax on premiums to your mortgage. You must pay this tax when you get your mortgage.
How the down payment affects the total cost of your mortgage
Save as much as you can for your down payment. The bigger the down payment, the smaller the mortgage, which may save you thousands of dollars in interest charges.
Example: How the size of a down payment affects the cost of a mortgage
Suppose you buy a home that costs $400,000.
Assume the following:
- interest rate is 4%
- amortization period is 25 years
- payment frequency is monthly
- mortgage loan insurance premiums are added to the mortgage
| Down payment | Down payment amount | Mortgage | Mortgage loan insurance premium | Mortgage (includes insurance premium) | Total cost of your home (includes all columns) |
|---|---|---|---|---|---|
| 5% | $20,000 | $380,000 | $15,200 | $395,200 | $643,649 |
| 10% | $40,000 | $360,000 | $11,160 | $371,160 | $625,712 |
| 20% | $80,000 | $320,000 | Not required | $320,000 | $584,979 |
