What Buyers Need to Know About Closing Costs When Buying a Home or Cottage in Muskoka

When buyers begin searching for a home or cottage in Muskoka, most of the attention naturally goes to the purchase price. But the amount you agree to pay for the property is not the only money you will need to complete the purchase.

There are closing costs, professional fees, adjustments and other expenses that should be considered when establishing your overall buying budget.

For a Muskoka waterfront property, there may also be due-diligence expenses that are less common when purchasing a conventional urban home. Septic systems, wells or lake-water systems, private roads, docks, boathouses, wood-burning appliances and other cottage-specific features can require additional investigation.

Understanding these costs before you make an offer can help you plan confidently and avoid an unwelcome financial surprise just before closing.

What Are Closing Costs?

Closing costs are expenses associated with completing a real estate purchase in addition to the purchase price itself.

Depending on the property and transaction, they can include:

• Ontario Land Transfer Tax
• Legal fees and disbursements
• Title insurance
• Registration and search costs
• Adjustments for property taxes and certain prepaid expenses
• Financing-related costs
• Appraisal fees where applicable
• Home inspection and specialized inspection costs
• Septic inspection or investigation
• Water testing
• WETT inspection where appropriate
• Property insurance
• Moving and immediate property setup costs

Not every transaction will involve every expense on this list. Your actual costs will depend on the property, purchase price, financing and the due diligence required.

Ontario Land Transfer Tax

One of the largest closing costs for many Ontario buyers is Land Transfer Tax.

Ontario Land Transfer Tax is generally calculated using graduated tax rates based on the consideration paid for the property. Higher-value residential properties can also be subject to additional rates on portions of the purchase price above specified thresholds.

Because Muskoka waterfront properties can involve substantial purchase prices, Land Transfer Tax can represent a significant amount and should be calculated before an offer is made.

The Government of Ontario provides current information about Land Transfer Tax, including applicable rates and information for purchasers.

Your real estate lawyer can calculate the tax applicable to your particular transaction.

What About the First-Time Home Buyers' Land Transfer Tax Refund?

Qualifying first-time home buyers may be eligible for an Ontario Land Transfer Tax refund, subject to the eligibility requirements in effect at the time of purchase.

Do not assume you qualify simply because this is your first cottage.

Eligibility depends on the provincial rules and your individual circumstances, including previous home ownership. Buyers should confirm eligibility with their lawyer rather than relying on a general online estimate.

Legal Fees and Disbursements

A real estate lawyer plays an essential role in an Ontario property purchase.

Depending on the transaction, the lawyer's work may include reviewing title, conducting searches, preparing and registering documents, handling mortgage funds, calculating closing adjustments and completing the transfer of ownership.

In addition to the lawyer's professional fee, there may be disbursements for searches, registrations, couriers, software, title-related expenses and other transaction costs.

Fees vary by lawyer and by the complexity of the transaction, so buyers should obtain an estimate directly from their lawyer.

Title Insurance

Title insurance is commonly used in Ontario real estate transactions.

It may provide protection against certain title-related risks, subject to the specific terms, exclusions and limitations of the policy.

Muskoka properties can sometimes have complicated title considerations involving rights-of-way, shore road allowances, old surveys, encroachments or other historical property matters.

Title insurance should not be considered a substitute for understanding the property. Your lawyer can explain what searches are appropriate and what protection a particular title insurance policy provides.

Property Tax Adjustments on Closing

Property taxes are typically adjusted between the buyer and seller as of the closing date.

For example, if the seller has already paid property taxes covering a period after closing, the buyer may reimburse the seller for the buyer's share. If an amount remains owing, the adjustment may work in the opposite direction.

These calculations are generally handled by the lawyers as part of the closing statement.

Buyers should remember that an adjustment is not necessarily an additional fee. It is often an allocation between buyer and seller of an expense associated with the period each party owns the property.

Other Adjustments Can Apply

Property taxes are not the only possible adjustment.

Depending on the property and terms of the Agreement of Purchase and Sale, there may be adjustments relating to certain prepaid expenses, fuel, association fees, road maintenance or other property-specific items.

For example, a cottage heated with propane or oil may have fuel remaining at the property. How that is handled will depend on the agreement and circumstances.

Your lawyer can explain the adjustments applicable to your transaction.

Home Inspection Costs

A home inspection is technically a due-diligence expense rather than a closing adjustment, but it is still part of the money buyers should budget when purchasing.

Muskoka homes and cottages can vary enormously in age, construction and condition.

A general home inspection may examine visible and accessible components such as:

• Roofing
• Foundation
• Electrical systems
• Plumbing
• Heating and cooling
• Insulation and ventilation
• Windows and doors
• Interior and exterior components
• Visible evidence of moisture or water intrusion

A general home inspection does not necessarily cover every system associated with a waterfront property. Additional specialists may be appropriate.

Septic Inspection and Investigation

Many Muskoka homes and cottages are serviced by private septic systems rather than municipal sewers.

Depending on the property and the terms of the purchase, buyers may want to investigate the septic system's age, location, permits, capacity, maintenance history and condition.

This can be particularly important when the number of bedrooms being used or advertised appears different from the capacity associated with the approved septic system.

A septic investigation may involve costs beyond a conventional home inspection, but understanding the system before purchasing can be extremely important.

Water Testing and Water-System Investigation

Muskoka properties may obtain their water from a drilled well, dug well, lake-water system or another private source.

Depending on the property, buyers may want to investigate water quality as well as pumps, filtration equipment, UV systems and other treatment components.

Information about private well water and testing is available from the Government of Ontario.

Water testing itself may be inexpensive or available through public programs for certain tests, but more extensive testing, inspections or treatment-system assessments can involve additional costs.

WETT Inspections and Wood-Burning Appliances

Wood stoves and fireplaces are common in Muskoka cottages.

A buyer's insurance company may request information about a wood-burning appliance and may require an appropriate inspection or documentation before providing coverage.

If a WETT inspection is required, it should be included in the buyer's due-diligence budget.

Information about WETT inspections and qualified professionals is available through Wood Energy Technology Transfer (WETT).

Property Insurance

Insurance should be investigated before closing — and ideally much earlier.

Waterfront and seasonal properties can have insurance considerations involving:

• Seasonal versus year-round occupancy
• Periods when the property is vacant or unoccupied
• Wood-burning appliances
• Older electrical systems
• Heating systems
• Private road or seasonal access
• Distance from fire protection
• Water damage and frozen plumbing
• Docks and boathouses
• Short-term or seasonal rentals

Buyers should speak directly with an insurance professional about the specific property rather than assuming it can be insured on the same terms as their principal residence.

We Know Firsthand Why Cottage Insurance Matters

Insurance is not something we consider merely a line item on a closing-cost worksheet.

Mark and Dee Dee experienced firsthand what can happen when something goes wrong at a cottage during a Muskoka winter.

Our power went out during the dead of winter, and the security system did not notify the monitoring service that the cottage had lost power. Without heat, the plumbing froze.

The resulting damage was substantial. Pipes had to be replaced, and relatively new sinks, toilets and other plumbing fixtures were affected by the water and freezing damage.

We were extremely grateful that we had appropriate insurance coverage.

The experience also taught us something we share with cottage buyers today: technology is helpful, but it should not necessarily be your only line of protection. If a cottage will be unoccupied during the winter, understand exactly what your insurance company requires and consider having someone physically check the property at appropriate intervals.

Insurance policies differ, so buyers should obtain advice directly from their insurer or insurance broker regarding coverage and any requirements when a property is vacant or unoccupied.

Mortgage and Financing Costs

If you are financing the purchase, there may be additional costs associated with the mortgage.

Depending on the lender and transaction, these could include:

• Property appraisal
• Lender administration fees
• Mortgage-related legal costs
• Mortgage default insurance where applicable
• Other lender-specific requirements

Financing a seasonal or unusual waterfront property can also be different from financing a conventional urban home.

Buyers should speak with their lender or mortgage professional early in the process and make sure the lender understands the type of property being purchased.

Appraisal Costs

A lender may require an appraisal to support its lending decision.

Depending on the lender, the cost may be paid by the lender or charged to the buyer.

Waterfront properties can be particularly specialized because value can be influenced by characteristics such as lake, shoreline, exposure, privacy, water depth, topography, road access, cottage quality, boathouse facilities and comparable waterfront sales.

Buyers should ask their lender whether an appraisal will be required and whether there will be a cost.

Survey and Property Boundary Costs

Some properties have a current survey or reference plan available. Others do not.

Depending on the property and the questions that arise during due diligence, a buyer may decide that additional surveying work is appropriate.

This can be particularly relevant when there are questions about:

• Property boundaries
• Rights-of-way
• Encroachments
• Shore road allowances
• Docks or boathouses
• Accessory structures
• Shared driveways

Surveying can be a meaningful additional expense, so buyers should investigate early when boundary or title questions arise.

Private Road and Association Costs

Some Muskoka properties are located on private roads.

There may be annual road fees, maintenance contributions, snow-removal costs or association fees.

These are generally ongoing ownership expenses rather than conventional closing costs, although prepaid amounts or other arrangements may sometimes be adjusted on closing depending on the agreement.

Buyers should understand who maintains the road, how expenses are shared and whether written agreements exist.

Do You Pay HST When Buying a Muskoka Home or Cottage?

This is an area where buyers should never make assumptions.

Many resale residential transactions are exempt from HST, but HST treatment can depend on the property and circumstances.

New construction, substantially renovated properties, rental use, vacant land and certain other transactions can raise different HST considerations.

The Canada Revenue Agency provides information about GST/HST, but buyers should obtain advice from their lawyer or qualified tax professional about the particular transaction.

Non-Resident Buyers May Have Additional Considerations

Buyers who are not Canadian citizens or permanent residents should obtain legal and tax advice before purchasing Ontario real estate.

Federal and provincial rules affecting non-resident or foreign purchasers can change, and eligibility to purchase property should never be assumed.

These buyers should speak with a Canadian real estate lawyer and qualified tax professional early in the process.

Closing Costs Are Different From Ongoing Ownership Costs

This distinction is particularly important when buying a cottage.

Closing costs are the expenses associated with acquiring the property. Ownership costs continue after you receive the keys.

Depending on the Muskoka property, ongoing costs may include:

• Property taxes
• Insurance
• Hydro
• Heating
• Internet and security monitoring
• Septic maintenance
• Well or lake-water system maintenance
• Private road fees
• Snow removal
• Dock and boathouse maintenance
• Landscaping
• Winterization and spring opening
• Repairs and capital improvements

For a substantial waterfront property, these ongoing expenses can be significant and should form part of the buying decision from the beginning.

How Much Should Buyers Budget for Closing Costs?

There is no single percentage that accurately predicts closing costs for every Muskoka purchase.

The purchase price, Land Transfer Tax, legal work, financing, inspections and property-specific due diligence can all change the total.

Rather than relying on a generic percentage found online, buyers should create a property-specific estimate with their lawyer, lender, Realtor and other professionals before becoming firmly committed.

For a higher-value Muskoka waterfront purchase, even a relatively small percentage of the purchase price can represent a substantial amount of money.

Keep Cash Available Beyond the Down Payment

A common budgeting mistake is concentrating so heavily on the down payment that very little liquidity remains for closing and the first months of ownership.

Remember that closing costs generally need to be funded in addition to the down payment.

It can also be wise to maintain a reserve for expenses that arise immediately after taking possession.

You may discover that you want to service the septic system, upgrade water treatment, repair a dock, replace furniture, purchase a generator, improve security monitoring or complete maintenance before the first cottage season.

Having room in the budget can make the transition into ownership much more comfortable.

Frequently Asked Questions About Muskoka Closing Costs

What closing costs should I expect when buying a cottage in Muskoka?

Depending on the transaction, costs may include Ontario Land Transfer Tax, legal fees and disbursements, title insurance, registration costs, closing adjustments, financing or appraisal costs and property-specific due diligence such as home, septic, water or WETT inspections.

Is Land Transfer Tax included in the purchase price?

No. Ontario Land Transfer Tax is generally an additional cost payable in connection with closing. Your lawyer can calculate the amount applicable to your purchase.

Do I pay HST when buying a resale cottage?

Many resale residential transactions are exempt from HST, but the tax treatment depends on the property and circumstances. Buyers should obtain advice from their lawyer or qualified tax professional rather than assuming HST does or does not apply.

Who pays the property taxes when I buy partway through the year?

Property taxes are generally adjusted between the buyer and seller as of the closing date. The lawyers calculate the appropriate adjustment based on amounts already paid or owing.

Is a septic inspection considered a closing cost?

It is more accurately considered a due-diligence expense, but buyers should include it in their overall purchase budget when a septic investigation is appropriate.

Will I need an appraisal for a Muskoka cottage?

Your lender may require one, particularly when financing is involved. Requirements vary by lender and property, so buyers should confirm this with their mortgage professional.

Do I need title insurance?

Title insurance is commonly used in Ontario real estate transactions. Your lawyer can explain whether it is appropriate for your transaction, what the policy covers and any exclusions or limitations.

How much money should I keep aside beyond my down payment?

The appropriate amount depends on the purchase price and transaction. Buyers should obtain estimates for Land Transfer Tax, legal fees, financing and expected due diligence and also consider maintaining a reserve for immediate property expenses after closing.

Are cottage closing costs different from buying a regular home?

Many core costs are similar, but Muskoka properties can involve additional due diligence relating to septic systems, private water sources, wood-burning appliances, private roads, surveys, shore road allowances, docks, boathouses and other waterfront considerations.

Buying a Home or Cottage in Muskoka?

The purchase price is only one part of deciding what you can comfortably afford.

At the Weiland Team, we believe buyers should understand the property and the financial realities surrounding it before becoming firmly committed.

That means looking beyond the asking price and asking questions about property taxes, insurance, septic and water systems, access, waterfront structures, inspections, legal considerations and the other expenses that may accompany ownership.

Our own years of Muskoka property ownership have also taught us that some of the most important lessons cannot be found on a listing sheet. We understand firsthand how quickly an unexpected cottage issue can become expensive and why good preparation, appropriate insurance and knowledgeable professional advice matter.

Our role is to help you ask the right questions, identify the professionals you may need and understand as much as possible about the property before you make one of life's most significant purchases.

Your Muskoka Dream Starts With The Weiland Team.

Weiland Team | eXp Realty
Luxury Muskoka Real Estate
Muskoka • Lake of Bays • Georgian Bay and surrounding cottage country
LuxuryMuskokaRealEstate.com

This article is intended for general educational information only and is not legal, tax, accounting, insurance or financial advice. Closing costs, taxes, government programs and regulations can change, and every transaction is different. Buyers should obtain advice specific to their circumstances from their real estate lawyer, lender, accountant, insurance professional and other appropriate qualified professionals.