Your complete guide to closing costs in Canada

Whether you’ve conquered the first hurdle of a down payment, or if you’re just getting started, it’s important to keep in mind that even at the end of the home buying process there are a couple closing costs to consider. 

What are closing costs?

During the entire mortgage process, you’ll often have to deal with a number of legal and administrative costs associated with closing your home in Canada. These closing costs are paid by you–the buyer–and are additional fees outside of your down payment and monthly mortgage costs. 

How much do you need for closing costs? 

What you have to pay for your closing costs can depend on a couple of things, but a good rule of thumb to follow is to always budget about 1.5% to 4% of your home’s purchase price. 

What might be included in your closing costs? 

When it comes to closing costs, most of the more common payments required include: 

Lawyer fees

Most, if not all, of the transaction for your new home is usually done through a lawyer. Their fees generally include the work that needs to be done to prepare the documents, make disbursements, and register the mortgage with the land titles office. During this process, your lawyer will handle: 

• Reviewing your purchase agreement
• Reviewing status certificates and budgets (if you’re buying a condo)
• Title searches (a title indicates legal ownership of the property) 
• Title insurance (which gives you protection if you end up in a property ownership dispute)
• Making sure property taxes are up to date
• Calculating how much of a land transfer tax you’ll owe 
• Co-ordinating the mortgage documents and funding with the lender/seller
• Exchanging keys and legal documents with the seller’s lawyer

Generally, these tasks are part of your closing costs but are built into the lawyer’s billing. 

Land transfer tax 

When you live in Canada, depending on your province, you may have to pay a land transfer tax, which is a percentage of the purchase price of your home. Oftentimes an afterthought, the land transfer tax takes up the largest chunk of your closing costs. However,  the percentage of what you’ll have to pay can vary from province to province, with some cities like Toronto requiring you to pay a provincial and municipal land transfer tax. 

And for first-time home buyers, you may be eligible for a land tax transfer rebate that your lawyer will be able to calculate. 

Provincial Sales Tax for the CMHC premium 

If your down payment is less than 20%, you’ll need to get mortgage insurance–most likely through the Canada Mortgage and Housing Corporation (CMHC). Despite what the name suggests, this insurance protects your lender in case you’re unable to make your mortgage payments. This protects the lender from losses if the borrower were to default on the mortgage. 

Although these premium payments are generally included in your monthly mortgage payments, you will have to pay a Provincial Sales Tax on the premium prior to closing. How much you’ll need to pay will depend on your premium and province.

Appraisal fee

If you put down 20% on your home, your lender may ask that you get an appraisal done to show that what you’re paying for is actually worth the price. Appraisal fees can range anywhere from $350 to $550, but sometimes you may be able to negotiate a full or partial waiver of the costs. 

Property taxes

Although property taxes are an annual expense–and generally aren’t considered a closing cost–depending on the date you take ownership, there may be instances where you’ll need to pay a portion of these fees. 

For example: If you take ownership of a property in the middle of the year, but the seller already paid the full year of property taxes upfront, you’ll need to reimburse a portion of taxes for the part of the year they no longer own the place. This is generally tacked onto the closing costs as a credit to the seller. 

GST/HST on a new construction home purchase 

If you happen to be buying a new construction house or condo, you’ll be charged a goods and services tax (GST) or harmonized sales tax (HST). How much you’ll pay, depends on the province you live in.

• In British Columbia, new home builds will cost 5% GST
• In Ontario, a new home build costs 13% HST

Generally, some builders include the additional GST/HST in the purchase price, and this will be reflected in your monthly mortgage payments. However, if the sale price on the home says “$500,000 + HST,” prepare to pay those taxes upfront upon closing. 

How you can lower your closing costs

While there are no ways around paying your closing costs, there are a couple things that can help you lower what you’ll owe: 

• Call around and compare the rates for various lawyers, home inspectors, etc.  
• If you’re a first-time home buyer there may be some refunds on your land transfer tax costs 
• Consider that the lower the cost of your home purchase, the lower your land transfer tax will be 

How to pay your closing costs 

Generally, closing costs and your down payment are paid to your lawyer–they’ll handle the full transaction along with the seller’s lawyer. These closing costs are usually needed a week before the purchase closing date, with your lawyer advising you of the total costs required prior to close. 

While these additional costs can feel like a lot, if you are a first-time home buyer, there are a couple of incentives you can consider to help you with buying your home overall–like being able to withdraw money from your RRSP. Keep things simple and try to have at least 3% of your purchase price to cover your closing costs. This will ensure you have a smooth ride to finalizing your home purchases. 

And, if you ever have specific questions about the mortgage process, connect with one of our experts today. They’ll happily guide you through your home-buying journey.