For Buyers

Buyer Closing Costs

Closing Costs Overview

Closing costs, ranging from 1.5 to 4% of the purchase price, are the legal and administrative costs you will need to pay when your house closes. In addition to closing costs, there are other expenses and/or events that may require a cash outlay before, on or after your house closes. We will outline these in detail to ensure these often unexpected costs do not sneak up on you.


Cash outlays required before your mortgage closes

  • Home Inspection Fee. It is highly recommended that you contract a home inspection as a condition of your Offer to Purchase. A home inspector will assemble a report on the condition of the home for a fee of around $500, depending on the complexities of the inspection.
  • Deposit. A deposit that counts towards your down payment is required when you make an Offer to Purchase. A deposit shows the seller you’re serious and committed to buying their property. It signals that you have the financial means to make the purchase and you’re comfortable taking on some level of risk until the deal closes. Unlike your down payment, there is no minimum required amount for the deposit.

Costs financed in your mortgage

Mortgage default insurance, or CMHC insurance, is not normally considered a traditional closing cost as it is added to the total mortgage you require and amortized over the life of your mortgage. We have chosen to include it here to point out the major difference between it and traditional closing costs: it does not require a cash outlay upon closing.

  • Mortgage default insurance. If you purchase a house with less than a 20% down payment, you will be required to buy mortgage default insurance, commonly referred to as CMHC insurance. This protects the lender in the case the borrower, defaults on the loan.

Mandatory closing costs covered by the home buyer

The following is a list of closing costs that are incurred by the home buyer

  • Land Transfer Tax. Calculated as a percentage of the purchase price of your home, all provinces have a Land Transfer Tax (LTT) payable on closing, with the amount varying in each province. Some cities, such as Toronto, also have a municipal LTT.
  • Legal Fees and Disbursements. You can expect to incur a minimum of $500 (plus GST/HST) on legal fees, which account for the preparation and recording of official documents. Find a residential real estate lawyer with MyClosingCosts.ca.
  • Title Insurance. Today, most lenders require title insurance to protect against losses in the event of a property ownership dispute. This is purchased through your lawyer/notary and costs $100 - $300.
  • PST on CMHC insurance. Though CMHC insurance itself is financed through the mortgage, PST on the insurance must be paid in cash at the time of close.

The following is a list of closing costs that are incurred by some home buyers as they are only applicable to certain properties

  • Septic tank. If the house has a septic tank, it should also be tested to ensure it is in good working order. Once again, you can negotiate the cost with the previous owner and list it in your Offer to Purchase.
  • Water Tests. If the home has a well, you will want to test the quality of the water and ensure there is an adequate supply, as well if the water is potable. You can negotiate these costs with the previous owner and list them in your Offer to Purchase.
  • Estoppel Certificate Fee (does not apply in Quebec). A certificate fee may be payable if you are buying a condominium or strata unit, and could cost up to $100

Mandatory closing costs often covered by the lender

  • Appraisal Fee. An appraisal, which is an estimate on the value of your home, is often covered by your mortgage lender. An appraisal is performed to certify the lender of the resale value of the home in the case you default on the mortgage. The cost is usually between $250 and $350.

Other costs to consider

  • Property Insurance. Property insurance, which covers the cost of replacing your home and its contents, must be in place on closing day. This insurance is often paid in monthly or annual premiums.
  • Prepaid Utility Bills. You may need to reimburse the previous owner of your property for prepaid costs such as property taxes, utilities and so forth.
  • Property taxes. Property tax is calculated as a percentage of your home value, varies by municipality and must be paid each year. The residential property tax rate in Toronto for example is 0.83%, and on a $400,000 home, would be equal to $3,320 per year. You may need to reimburse the previous property owner if he/she has already paid property taxes for the full year. You are also given the option to set-up an automatic payment plan with you lender. Your lender will set up an account for you, collect an additional $277 per month ($3,320 / 12 months) and then pay property taxes on your behalf. Though by no means necessary, some homeowners find this service extremely valuable for budgeting purposes.

Closing Day

Closing Day is the day you finally take legal possession of your home. It's important the bulk of your administration is completed by this point including transferring your down payment to your lawyer. Transferring down payment funds, especially from your RRSP can take time, and should be done several days before close.

On closing date, the following events will take place:

  • Your lender will provide the mortgage funds to your lawyer/notary.
  • You must provide, your down payment less the deposit, to your lawyer/notary along with the closing costs.
  • Your lawyer/notary pays the previous owner, registers the home in your name, and gives you the deed and keys to your new home.

Congratulations! You are now ready to move in.

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10 tips for home buyers


1. Know how much you can afford 
Banks and other lenders have formulas to determine how much you can afford to borrow. But they don’t always have your best interest in mind. Crunch the numbers yourself to make sure that you feel confident that you can afford the payments. Don’t forget to factor in child care expenses, retirement savings, and the cost of your lifestyle. Just because the bank approves you for a $300,000 mortgage doesn’t mean you can actually afford them. 

Even though your dream might be to purchase a character home in an established neighbourhood, you might only be working with a budget for a condo. Don’t overbuy on your first home. You’ll end up being better off with smaller payments on a starter home. You can always move up later on. 

2. What’s on your wish list? 
Before you start seriously shopping for your first home, you should determine what your needs and wants are. Create a list of features you are willing to compromise on, and ones that you need to have. By doing this, you will be able to narrow your house search down to properties that really fit your needs. 

3. Aim for a 20% down payment 
Your down payment should be at least 5 per cent of the price, but it is highly recommended that all first time home buyer aim to put down 20 per cent of the value of the home in order to qualify for a conventional mortgage. If you have money in your RRSPs, you can use up to $25,000 towards the purchase of your first home.  

Also it is crucial to remember that what you have saved for a down payment isn’t necessarily the amount you will end up using. You might want to keep back a little cash for closing costs, minor repairs or furniture for your new home, and moving expenses. 

4. Don’t forget about closing costs 
Closing costs can range anywhere from 1.5 to 3.5 per cent of the total cost of your home. You might be expected to pay for some or all of the following: 
• Home inspection fee 
• Legal fees 
• Property transfer tax 
• Appraisal fee 
• Land transfer tax 
• Title insurance 
• Interest adjustment 
• Property and fire insurance 

5. Get pre-approved for your mortgage 
After you’ve figured out how much you can afford for a down payment, decided what you must have in a property, and budgeted for closing costs, the next step is to contact a bank or mortgage broker in order to get pre-approved for a mortgage. 

Getting pre-approved for your mortgage gives you an edge over other people who might be interested in the same property as you. The seller will know that you are a serious buyer, and you are able to confidently negotiate the purchase of a home. 

6. Understand the different payment options 
You can pay for your mortgage in a variety of ways, including monthly, bi-weekly, and weekly payment options. Paying off your mortgage sooner will save you thousands of dollars in interest costs, while a longer amortization period will reduce your regular payments and frees up cash in your budget. You can use this online mortgage calculator to help you decide what payment schedule is right for you. 

Some mortgages also give you the ability to make extra lump sum payments, or the option to skip a payment. Make sure you understand what your options are, and that you are comfortable with the terms. 

7. Calculate your moving expenses 
Moving can be expensive – especially if you hire a moving company if you’re traveling a long distance. Create a moving budget, and remember to consider all of the hidden costs of moving.

8. Furnishing your new home 
I’ve gotten by without having much “grown up” furniture. It wasn’t until last year that I finally owned a couch of my own. I know that when it comes to buying my first place, I will need basic items like a coffee table, dining room set, computer desk, dresser drawers, lamps, and a bed frame. Instead of spending thousands of dollars buying new, most of these items I will purchase second-hand, and then refurbish to fit my own style. 

9. Buy with your head, not your heart 
Think logically and realistically with the biggest purchase of your life. Letting your emotions overtake common sense might result in paying more for your home either at the point of sale, or over the long run – and you might never recuperate your losses. 

10. Once you find your home, stop looking 
It’s the golden rule for choosing anything from a car to a wedding dress to a life partner – once you’ve found what you are looking for – stop looking! The same goes for a house. Once you’ve gotten the keys to your home, instead of looking for something better than what you have, focus your energy on making the space your own.