Buying a home is an exciting milestone, especially for first-time buyers. However, many people are surprised to find out that the purchase price and down payment are not the only costs involved. To complete a home purchase, you’ll also need to budget for closing costs — a variety of additional fees and expenses required to transfer ownership of the property officially.
This blog will help you understand what closing costs are, how much is the closing cost, what is included in closing costs for the buyer, and how to calculate and plan for these expenses when buying a home in Canada.
What Are Closing Costs?
Closing costs are the one-time fees and charges that homebuyers must pay at the time of finalizing the purchase. These include legal fees, land transfer taxes, mortgage insurance, inspection fees, and more. They are separate from your down payment and are needed to ensure the property is legally transferred into your name and your mortgage is properly registered.
If you’re wondering what closing costs are when buying a house, they are essentially the last set of financial obligations you must fulfill before receiving the keys to your new home. They ensure that the legal, tax, and administrative parts of the real estate transaction are completed properly.
How Much Are Closing Costs?
A common question from buyers is how much are closing costs, and the answer depends on various factors, including the purchase price of the home and its location.
If you’re asking how much is the closing cost for the buyer, the best estimate is to plan for 1.5% to 4% of the home’s purchase price. Having these funds available is often a requirement to qualify for a mortgage.
For example:
- On a $300,000 home, closing costs might range from $4,500 to $12,000
- On a $500,000 home, you might pay between $7,500 and $20,000
Your total will depend on where you’re buying, the services you use, and whether you’re a first-time homebuyer eligible for rebates. If you’re buying in Ontario, it’s important to know how much the closing cost is in Ontario — the amount is often on the higher side due to provincial and municipal land transfer taxes, especially in cities like Toronto.
What Is Included in Closing Costs for the Buyer?
Let’s break down the typical house closing costs you can expect to pay:
- Land Transfer Tax
This is one of the largest closing costs and varies by province. It’s calculated as a percentage of the home’s purchase price. Ontario, for example, has both a provincial and a municipal land transfer tax (if buying in Toronto). First-time buyers may qualify for rebates.
- Legal Fees
You’ll need a real estate lawyer or notary to handle the legal paperwork, including transferring the title and registering your mortgage. Legal fees typically range from $1,000 to $3,000, depending on the complexity of the transaction.
- Title Insurance
This protects against issues like title fraud or problems with the property’s ownership history. The cost can range from $150 to $500, depending on your lender and province.
- Home Inspection Fee
While not mandatory, a home inspection is highly recommended. It can reveal problems with the home’s structure or systems. A typical inspection costs between $500 and $1,500, depending on the size and location of the home.
- Appraisal Fee
Lenders may require a home appraisal to confirm the property’s market value. This typically costs $300 to $500. Sometimes the lender will cover this fee, but often it’s the buyer’s responsibility.
- Property Survey
If a recent survey is unavailable, you may need to commission one to confirm boundary lines. A property survey may cost between $1,500 and $6,000, depending on the size and type of property.
- Mortgage Default Insurance and PST
If your down payment is less than 20%, you’ll need mortgage default insurance from CMHC, Sagen, or Canada Guaranty. This premium can range from 2.8% to 4% of the mortgage amount. While the premium is usually added to your mortgage, the provincial sales tax (PST) on it must be paid at closing in provinces like Ontario (8%), Quebec (9.975%), and Saskatchewan (6%).
- GST/HST on New Homes
If you’re buying a newly built home or pre-construction condo, you may need to pay GST or HST. In many cases, this tax is included in the price, but not always. It ranges from 5% to 13% depending on the province.
- Property Tax Adjustments
Property taxes may be adjusted based on the purchase date. If the seller has prepaid taxes beyond the closing date, you’ll reimburse them. These adjustments can range from a few hundred to a few thousand dollars.
- Government Registration Fees
These fees cover the cost of registering the property and mortgage in your name. They usually cost around $200, but amounts vary by province.
- Status Certificate (for Condos)
If you’re buying a condo, the seller or buyer may request a status certificate to confirm the condo corporation’s financial and legal standing. This typically costs $100.
How to Calculate Closing Costs
If you’re wondering how to calculate the closing cost, here’s a simple step-by-step:
- Start with your purchase price.
Multiply it by 1.5% and 4% to get a range of expected closing costs. - Use a land transfer tax calculator.
Depending on your province, this tax can make up a large portion of your total. - Add estimated legal fees, title insurance, and inspections.
Make a list of all expected fees and add them to your estimate. - Include mortgage insurance and applicable taxes.
Remember to factor in PST on mortgage insurance premiums if you’re putting less than 20% down. - Leave room for unexpected costs.
It’s smart to overestimate slightly to avoid surprises.
When Selling a House, Who Pays the Closing Cost?
When selling a house, one common question is, who pays the closing cost? In Canada, the buyer is typically responsible for most closing costs related to the purchase. Sellers, however, have their own costs — mainly legal fees and real estate commissions. These fees are deducted from the sale proceeds.
Understanding what closing costs are, how much is the closing cost, and what is included in closing costs for the buyer is crucial to being financially prepared when buying a home in Canada. Whether you’re buying a condo in Toronto or a house in Vancouver, closing costs are an unavoidable part of the process.
To sum up:
- Closing costs typically range from 1.5% to 4% of your home’s purchase price.
- These costs include legal services, taxes, insurance, inspections, and more.
- Use online calculators and get quotes early in the process to avoid surprises.
Being well-informed about mortgage closing costs and all related fees will help ensure a smoother and less stressful homebuying experience.
