The closing process is the final hurdle before you can officially call your new house “home.” While it’s an exciting step, it can also be one of the most complex and stressful parts of buying a home in Ontario. Understanding what happens during closing and being prepared for each step can help you navigate this process smoothly.
In this article, we’ll walk you through everything you need to know about the closing process in Ontario, from the initial offer to getting the keys to your new home.
1. The Offer to Purchase: Making It Official
Once you’ve found your dream home, the first step is to make an offer. This is typically done through a written agreement, often called an “Agreement of Purchase and Sale” (APS), which outlines the terms of the purchase, including the price, closing date, and any conditions (such as securing financing or a home inspection).
Here’s what to keep in mind during this stage:
- Conditional Offers: In Ontario, it’s common to include conditions in your offer, such as financing approval, a satisfactory home inspection, or the sale of your current home. These conditions must be met within a specified period, and if they aren’t, you can either negotiate an extension or walk away from the deal without losing your deposit.
- Deposit: When your offer is accepted, you’ll need to provide a deposit. This is typically about $5,000 and is held in trust by the seller’s real estate brokerage until closing. The deposit is credited toward your down payment on the closing day. It’s important to note that there is no minimum requirement for a deposit. However, the more deposit you put with your offer, shows the seller you are committed to purchasing their property.
- Negotiations: Depending on the market conditions, there may be some back-and-forth negotiation between you and the seller on the price, closing date, and conditions. Your real estate agent will help you navigate this process and ensure that your interests are protected. Please reach out to me if you need a referral for a great real estate agent!
Once all parties agree on the terms, the deal moves forward, and the clock starts ticking toward the closing date.
2. Mortgage Approval: Securing Your Financing
After your offer is accepted, the next critical step is to finalize your mortgage approval. If you’ve already been pre-approved for a mortgage, this part should go smoothly, but there are still a few key things to keep in mind:
- Final Approval: Your lender will need to approve the specific property you’re purchasing. This often involves an appraisal to ensure that the home’s value supports the loan amount. Once the lender is satisfied, you’ll receive final approval, and your mortgage commitment will be issued.
- Mortgage Insurance: If your down payment is less than 20%, you’ll need to secure mortgage default insurance through the Canada Mortgage and Housing Corporation (CMHC), Sagen, or Canada Guaranty. This insurance protects the lender in case you default on the mortgage and is added to your mortgage balance.
- Rate Lock: Make sure your mortgage interest rate is locked in with your lender. This protects you from rate increases before your closing date. Rate locks typically last for 60-120 days, depending on your lender.
Once your mortgage is fully approved, you can move forward with confidence, knowing that your financing is secured.
3. Conducting Due Diligence: Inspections and Legal Work
During the closing process, several tasks must be completed to ensure that everything is in order before you take ownership of the property. These include home inspections, title searches, and legal work.
- Home Inspection: If your offer was conditional on a home inspection, this is the time to have a certified home inspector evaluate the property. The inspector will check for any issues such as structural problems, electrical issues, or water damage. If the inspection reveals any major concerns, you may need to renegotiate with the seller or, in some cases, back out of the deal.
- Title Search: Your lawyer will conduct a title search to ensure that there are no outstanding liens or claims against the property. This step ensures that you’re purchasing a property with clear ownership.
- Fire Insurance: Before closing, you’ll need to arrange for fire insurance on the property. Most lenders require this coverage as a condition of the mortgage, and it’s an essential protection for your new investment.
Once these steps are completed and everything checks out, you’re one step closer to closing the deal.
4. Closing Costs: Budgeting for the Final Expenses
Closing costs can add up quickly, so it’s essential to budget for them well in advance. In Ontario, closing costs typically range from 1.5% to 4% of the purchase price. The lender will request 90 days banking history to show available funds. These funds can be from your regular banking account, savings/investment accounts or by a gift from a direct family member and can include the following:
- Land Transfer Tax: This is one of the most significant closing costs in Ontario. The tax is calculated based on the purchase price of the property and varies by municipality. If you’re a first-time homebuyer, you may be eligible for a rebate on a portion of the tax.
- Legal Fees: Your real estate lawyer will handle the legal aspects of the transaction, including the title search, preparing closing documents, and facilitating the transfer of funds. Legal fees can range from $1,000 to $2,500, depending on the complexity of the transaction.
- Title Insurance: Title insurance protects you from potential issues with the property’s title, such as fraud, errors, or omissions. It’s a one-time cost, typically ranging from $250 to $400.
- Adjustments: Depending on the closing date, you may need to reimburse the seller for any prepaid property taxes, utility bills, or condominium fees. These are known as “adjustments” and are calculated by your lawyer before closing.
Be sure to set aside enough funds to cover these closing costs and avoid any last-minute surprises.
5. Closing Day: Finalizing the Deal
Closing day is when everything comes together, and you officially become the owner of your new home. Here’s what happens on closing day:
- Transfer of Funds: Your lawyer will coordinate with your lender and the seller’s lawyer to transfer the necessary funds. This includes the balance of the purchase price, closing costs, and any adjustments.
- Signing Documents: You’ll meet with your lawyer to sign the final closing documents, including the mortgage agreement, deed, and any other paperwork required by your lender or the municipality. This is typically done a few days before closing.
- Title Transfer: Once the funds are transferred and the documents are signed, the title of the property is transferred to your name. Your lawyer will register the transaction with the Ontario Land Registry Office.
- Receiving the Keys: After everything is finalized, you’ll receive the keys to your new home, and the property is officially yours!
Conclusion
Navigating the closing process can feel overwhelming, but with the right preparation and support, it doesn’t have to be. By understanding the steps involved—from making an offer to securing financing, conducting due diligence, budgeting for closing costs, and finalizing the deal—you can ensure a smooth and successful closing.
With this knowledge, you’ll be ready to take the final step in your homebuying journey with confidence and excitement. Welcome to your new home!
