Closing Costs in Canada

The closing process can be a complicated and expensive step in your home-buying journey. In addition to your down payment, you will likely need to pay thousands of dollars in additional fees and closing costs.

This comprehensive guide examines Canada’s most common closing costs, including legal fees, land transfer taxes, and other mandatory fees. You’ll also learn tips and strategies to reduce your costs. With proper planning and budgeting, you can make the final steps of your homebuying journey smooth and affordable.

What Are Closing Costs?

Closing costs refer to the various administrative and legal fees associated with completing a real estate transaction. While the purchase price covers the home, closing costs pay for the services required to legally transfer ownership and secure financing.

These costs are separate from your down payment and recurring mortgage payments. You’ll need to pay closing costs upfront, usually around a week before the closing date. Closing costs typically range from 1.5% to 4% of the purchase price. On a $500,000 home, you may pay $7,500 to $20,000.

Closing costs ultimately ensure all parties involved get paid for their work facilitating the purchase. This includes your real estate lawyer, land title offices, mortgage lender, inspectors, appraisers, and more. Understanding these costs helps you budget properly and avoid financial surprises.

Common Closing Costs for Homebuyers in Canada

Common Closing Costs for Homebuyers
Common Closing Costs for Homebuyers

When buying a home in Canada, there are several standard closing costs that most purchasers will need to pay. Here is an in-depth look at some of the most common fees:

Legal Fees

Legal fees are paid to the real estate lawyer or notary required to process the home purchase and transfer of ownership. Lawyers handle many key tasks, such as reviewing the purchase contract, conducting title searches, preparing the mortgage documents, safely transferring funds between parties as required, and giving the buyer possession of the property on closing day.

Depending on the purchase’s complexity, legal fees range from $1,000 to $3,000 on average. Expect to pay more if extra title searches are required, title issues must be resolved, or other complications arise. Many lawyers will provide flat fee quotes upfront, so costs are predictable. [Source]

Land Transfer Tax

The land transfer tax (LTT) is paid to the province when a property’s title transfers from one owner to another. This one-time tax ranges from 0.5% to 5%, depending on the home’s purchase price and location. Land transfer tax is calculated on the property’s sale price, and rates can be marginal, with higher amounts taxed at progressively higher percentages.

First-time home buyers may qualify for rebates. For example, first-time buyers in Ontario can get up to $4,000 back. [Source]

The tax can be quite substantial on expensive homes; you should get an estimate from your real estate lawyer beforehand. New construction homes are exempt from provincial land transfer taxes.

Home Inspection Fee

Hiring a qualified home inspector before finalizing a resale home purchase is highly recommended. The average inspection cost in Canada is between $400 and $600, providing a deep analysis of the property’s condition. [Source]

The report will look at:

  • Structural elements like the foundation, framing, roof and exterior finishes
  • Mechanical systems, including electrical, heating/cooling, plumbing and appliances
  • Potential safety issues like mould, asbestos, radon gas, water penetration
  • Functionality of living spaces, doors, windows, layout and flow

Home inspections help buyers negotiate repairs or price reductions for identified issues before closing. Walking away is also an option if major concerns arise. Avoid being stuck with surprise renovation costs down the road.

Appraisal Fee

The mortgage lender usually arranges a certified appraiser to evaluate the property and confirm its fair market value. Appraisals cost around $300 – $600, depending on the appraiser and local housing prices. Ensuring the purchase price aligns with true property value protects the lender’s interests. Low appraisals may require the buyer to put up a larger down payment.

Title Insurance

Title insurance offers financial protection for both lender and buyer if problems with the home’s title emerge after purchase. It covers legal expenses from disputes over unclear property boundaries, mistakes in public records, unknown liens, and more.

Title insurance costs between $200 and $500, depending on the home’s value, location, liens against the property, and other factors. It’s a one-time fee paid at closing.

Mortgage Default Insurance

High-ratio mortgages (less than 20% down payment) require mortgage default insurance protecting the lender if you fail to repay. Premiums range from 1.8% to 4% of the total mortgage amount, depending on your level of down payment.

This cost can be paid as a lump sum or added to your mortgage principal. If choosing the latter, you pay interest on the premium over your mortgage amortization. The premium cannot be borrowed; sales tax must be paid upfront.

Property Tax Adjustments

You or your lawyer will need to adjust for property taxes already paid by the seller, covering the portion of the year after the sale closes. For example, if the seller prepaid property taxes till December but you take possession in July, you would owe the prorated amount for July-December. Your real estate lawyer handles this adjustment as credits and debits between the parties.

GST/HST

Unlike resale homes, purchases of newly constructed homes are exempt from provincial property transfer taxes. However, depending on the province, you pay federal GST or HST instead, ranging from 5% (GST) to 15% (HST). Some regions have combined GST and PST into a blended HST. If the builder hasn’t included GST/HST in the purchase price, it becomes part of your closing costs, equaling thousands of dollars.

Other Possible Closing Costs in Canada

Depending on your specific home purchase, you may encounter a few additional closing costs, such as:

  • Utility Account Activation Fees

When purchasing a resale home, you must transfer the property’s electricity, natural gas, water, internet, cable TV, and other utility accounts into your name. Most utility companies charge activation or transfer fees to start new accounts, usually ranging from $20 to $60 per account.

  • Home Warranty Fees

New construction homes will include warranty protection from the builder or third parties. This covers defects in workmanship and materials for set periods, often starting from 1-2 years. The builder normally includes the home warranty cost in the purchase price, but depending on the policy and property type, it could add $500- $1500 to your closing costs.

  • Condo/Strata Fees

If purchasing a condominium or strata property, expect to pay additional closing costs. One-time condo fees cover your share of purchasing communal amenities or the condo’s reserve fund. Monthly maintenance fees are paid for building upkeep, property management, shared utilities, and insurance.

Condo/strata costs vary widely based on amenities offered and the building’s age, location and size. Ask the seller for a breakdown.

  • Moving Expenses

Moving expenses aren’t technically closing costs, but buyers should account for these extra costs in their budget. Long-distance professional movers can easily cost $5,000-$10,000 or more. Renting trucks or hiring local movers for smaller local moves may cost $2,000-$3,000. Additional expenses like packing supplies, equipment rentals, storage fees, and more also add up quickly when relocating homes.

  • Property Surveys

Most mortgage lenders require a current property survey when financing a home purchase. The survey verifies the property boundaries and size. Depending on property location and complexity, if the seller cannot provide an updated survey, you’ll likely have to pay around $1,000-$3,000 for a new certified survey. Rural properties often cost more to survey than urban lots.

  • Non-Resident Speculation Taxes

Foreign homebuyers may pay additional property transfer taxes in some areas. Ontario charges a 15% Non-Resident Speculation Tax (NRST) on foreign purchases in the Greater Golden Horseshoe region.

In British Columbia, foreign buyers in urban areas pay an extra 20% property transfer tax. Foreign students, workers, or taxpayers may qualify for rebates when they become permanent residents or citizens.

  • Rural Closing Costs

Homes on acreages, farms and rural properties often require well and septic tests, which city properties connected to municipal water/sewer systems don’t need. Expect to pay $300 – $500 for good water quality and flow tests. Septic inspections also average $300 – $500 to ensure your private sewage system is maintained and functioning adequately. Your lender may mandate these tests to protect their investment.

How Much Should You Budget for Closing Costs?

How Much Should You Budget for Closing Costs
How Much Should You Budget for Closing Costs?

Budgeting 1.5% to 4% of the home’s purchase price for closing costs is recommended. However, your exact costs depend on multiple factors:

  • Property value – Higher-priced properties have higher closing costs.
  • Location – Closing costs vary by province and municipality.
  • Property type – Condos or rural properties may have additional fees.
  • Down payment – 20% or more avoids mortgage insurance costs.
  • New build vs. resale – Resales include land transfer tax.

If you’re buying and selling a home concurrently, budget 4-5% with emergency reserves. Get quotes from professionals to estimate precise figures. Itemizing all expected costs helps avoid shortfalls. Your lawyer will confirm the final numbers.

Ways to Reduce Closing Costs in Canada

While closing costs are typically mandatory, the following tips can potentially lower your total:

  • Shop around for lawyers and title insurers to compare rates. Consider flat-fee legal services.
  • Take advantage of rebates, exemptions, and programs offered to first-time homebuyers in certain provinces. These can discount land transfer taxes.
  • Make a down payment over 20% to avoid mortgage insurance premiums and associated sales taxes.
  • Choose a less expensive home to reduce proportional closing costs.
  • Negotiate with the seller to cover specific closing fees or offer closing cost credits.
  • Compare mortgage lenders for options that include partial rebates on closing costs.

Who Pays Closing Costs in Canada?

Homebuyers pay the majority of standard closing costs. However, sellers also owe their real estate agents and lawyers closing costs. Your lawyer will notify you of your share of precise closing costs once your mortgage is approved.

Unless otherwise arranged, you’ll provide certified cheques or bank drafts to your lawyer to cover closing expenses a few days before the closing date. The lawyer disburses payments to the appropriate recipients from the funds collected.

Overview of the Home Closing Process in Canada

Understanding the full sequence of events leading to and on the closing day helps you prepare and budget accordingly. Here are the basic steps:

  1. Get pre-approved for a mortgage from a licensed lender based on your income, debts, credit score and down payment funds.
  2. Make an offer to purchase once your pre-approval is secured. Submit a good faith deposit with your offer.
  3. Upon accepting the offer, your real estate lawyer reviews the purchase agreement. If applicable, you may complete additional inspections or appraisals now.
  4. A week or so before closing, your lender provides the mortgage funds to your lawyer/notary in trust.
  5. You deposit the down payment minus the initial deposit to your lawyer/notary. You also provide certified cheques or bank drafts to cover closing costs.
  6. On the closing date, your lawyer pays the seller, registers the home in your name, and provides you with the deed and keys. The transaction is complete!

Why Understanding Closing Costs Matters?

Why Understanding Closing Costs Matters
Why Understanding Closing Costs Matters?

Being aware of all costs associated with purchasing a home is crucial for the following reasons:

  • Accurately Calculates Funds Required – Closing expenses must be factored into your home-buying budget. Underestimating costs lead to financial shortfalls.
  • Avoids Surprises Later On – There should be no sticker shock on closing day. Itemizing expected costs keeps you fully informed.
  • Locks Down Mortgage Amount – Projected closing costs impact the total loan amount you need to borrow.
  • Provides Peace of Mind – Ready access to closing funds ensures a smooth process.

The expertise of real estate lawyers and mortgage professionals helps guide you through the closing process and associated costs for a stress-free experience.

Closing Cost Considerations by Province in Canada

While the closing process follows the same general stages across Canada, requirements and costs can vary significantly between provinces. Here is an overview of key considerations based on your province:

British Columbia

  • Property transfer tax: 1-3% of property value
  • GST of 5% applies to newly constructed homes
  • Legal fees range from $1,200 – $2,000.
  • Home insurance is required.

Alberta

  • No provincial land transfer tax, but a land titles registration applies
  • Legal fees range from $650 – $1000.
  • Mandatory home warranty insurance on new homes.

Read the full guide: Closing Costs in Alberta

Saskatchewan

  • Land titles registration fee: 0.3% of the purchase price. No land transfer tax.
  • Legal fees are around $800 – $1,000.
  • Mandatory home warranty on new builds.

Manitoba

  • Higher land transfer tax rates of 0.5% to 2% depending on price.
  • Lawyer fees are around $700 – $1,500.
  • 7% PST payable on CMHC premiums.
  • New homes require a New Home Warranty.

Ontario

  • Double land transfer tax, both provincial (up to 2%) and municipal (Toronto up to 3%).
  • HST of 13% on CMHC premiums.
  • Legal fees are $1,000 – $2,000.
  • Title insurance is required for properties over $1 million.

Read the full guide: Closing Costs in Ontario

Quebec

  • Land transfer duties are up to 17%, depending on price.
  • Mandatory civil law notaries instead of lawyers. Fees around $1,000 – $3,000.
  • QST of 9% on CMHC premiums.
  • A home warranty is commonly included in the purchase price.

Nova Scotia

  • Property transfer tax is up to 3%, depending on the price.
  • 15% HST on CMHC premiums.
  • Legal fees are around $850 – $1,500.
  • Property surveys are required and included in legal fees.

New Brunswick

  • Land transfer tax is 1% of the first $150k, and 1.5% is over $150k.
  • 15% HST on CMHC premiums.
  • Legal fees are around $600 – $1,200.
  • Lenders may require property surveys.

PEI

  • Land transfer tax is 1% of the first $30k, 1.5% from $30,000 to $50,000, and 2% over $50k.
  • 15% HST on CMHC premiums.
  • Legal fees from $750 – $1,500.
  • Lenders may require property surveys if no recent one is available.

Newfoundland & Labrador

  • Land transfer tax is 0.5% for the first $30,000 and 1% over. The rates are higher in St. John’s.
  • 15% HST on CMHC premiums.
  • Legal fees are around $1,000 – $1,500.
  • Home insurance is required. Budget $20 – $40 monthly.

Yukon, Nunavut & Northwest Territories

  • Land registration fees apply instead of land transfer taxes.
  • Legal fees are $1,000 – $2,000.
  • No PST on mortgage insurance, but GST applies.
  • Significant closing costs on rural/remote properties requiring septic and well tests.

Partner With a Mortgage Broker

Purchasing a home is a significant financial commitment involving more than saving for a down payment. Closing costs are also a significant factor in your homebuying budget. Knowing these legal fees, taxes, and other charges in advance prevents stressful surprises.

Speaking with an experienced mortgage broker can give you tailored advice and mortgage solutions to fit your needs. Contact Best Mortgage Online today!

FAQs

How much are closing costs on a mortgage in Canada?

Closing costs typically range from 1.5% to 4% of a home's purchase price. On a $300,000 home, plan for $4,500 to $12,000 in closing cost

Why do I have to pay closing costs when I buy a house in Canada?

Services like lawyers, appraisers, inspectors, and land title offices facilitate the sale. Closing costs compensate them for their work, and these fees legally transfer ownership.

What closing costs can I expect when buying a house in Canada?

Legal fees, land transfer taxes, home inspections, title insurance, appraisals, mortgage insurance premiums, and taxes are common closing costs. Extra fees may apply.

Who pays for closing costs when buying a house in Canada?

In most cases, the home buyer pays closing costs. Sellers pay commissions and fees related to selling their homes. Some closing costs can be negotiated.

When are closing costs due when buying a home in Canada?

Closing costs are due a few days before closing when buyers provide certified cheques to their lawyer. The lawyer then disburses payments.

Can closing costs be included in Mortgage Canada?

In some cases, most closing costs cannot be added to your mortgage except for mortgage insurance premiums. You must pay them upfront.

Do closing costs vary by province in Canada?

Compare rates, take advantage of rebates, buy homes under $500k, make 20%+ down payments, negotiate seller contributions, and find lenders offering cost rebates.

What are closing costs for first-time home buyers in Canada?

First-time home buyers can expect to pay all standard closing costs but may be eligible for rebates and exemptions, especially on land transfer taxes.

What tax do foreign buyers pay in Canada?

In Ontario and British Columbia, foreign buyers may pay an additional Non-Resident Speculation tax, which ranges from 15% to 25% of the property's value.

Do all provinces have land transfer tax?

All provinces except Alberta and Saskatchewan charge land transfer tax when a property changes ownership. Rates vary by location.

Article Sources
  1. An overview of mortgage closing costs in Canada – fidelity.ca
  2. Closing Costs: Types and How to Calculate – nesto.ca
  3. How much will my home really cost? – cmhc-schl.gc.ca