Closing Costs You’ll Pay When Buying a Home
Closing costs are the legal and administrative fees you need to pay when your home purchase closes.
Closing costs are made up of several one-time fees, so they can add up rather quickly. It’s important to factor them into your budget before making an offer on the house you want.
How much are closing costs?
Expect closing costs to equal 1.5%-4% of the purchase price of the home.
So, if you are buying a home for $400,000 then your closing costs will add an additional $6,000-$16,000.
This is a pretty significant sum, which is why you need to take closing costs into consideration when making an offer and figuring out your down payment.
The actual amount of your closing costs will depend on several factors, including where you live and what kind of home you are buying.
Use a closing costs calculator to better estimate how much you might have to pay on closing day.
Common closing costs in Canada
Closing costs is the umbrella term for a group of expenses you must pay when you buy a home. Some are mandatory, some are optional, and some may be specific to your situation.
Here’s a quick breakdown of the types of closing costs you may be responsible for.
What it is | Cost | |
|---|---|---|
Home inspection | A home inspection is a professional evaluation of a home’s condition. For example, if the roof has a leak, you’ll want to know about it before you buy. These types of things can impact your decision to buy the house and impact how much you are willing to offer. A home inspection is optional in Canada but usually recommended. | The cost for an inspection depends on the age, location and size of the home. As one example, expect to pay between $300 and $600 in Ontario. |
Property appraisal | A home appraisal will likely be ordered by your mortgage lender before your loan is fully approved. The appraisal serves as an estimate for the overall market value of the property you are buying. | Between $300 and $500. |
Property survey | A property survey identifies the property’s boundaries and identifies any buildings or factors that may impact the overall value of the property. Often, the lender will ask you to provide an up-to-date property survey upon mortgage application. If you are lucky, the seller will have one they can give you. If not, you can hire a professionally licensed land surveyor to do one. | Between $1,000 and $2,000. |
Title insurance | Title insurance protects you and the lender from challenges to ownership that might result from real estate fraud as well as municipal work orders, zoning violations and any other property defects. Typically, your lawyer will take care of this for you and include the cost in the legal fee you’re charged. Title insurance is a one-time cost; you won’t pay ongoing premiums, like property insurance. | Plan to spend between $150 and $300. |
Property insurance | Property insurance, often called home insurance, is required and must be in place before your lender will advance funds. Your monthly premium depends on many factors, including the likelihood of severe weather events in your area, your claim history and the age of your home’s electrical system. | The actual amount can vary widely, but $100 per month could be a reasonable placeholder until you get a quote. |
Mortgage default insurance | If you have less than 20% for a down payment on your home, you will need mortgage default insurance. The closer your down payment is to 20%, the lower your mortgage insurance rate will be. The amount is usually added onto the mortgage loan, but any provincial sales taxes charged on the mortgage default insurance must be paid in full at closing. | Typically between 0.6% and 5% of the loan amount. |
Land transfer tax | Land transfer tax (LTT) is charged on properties across Canada. Each province has its own LTT and some municipalities (such as Toronto) also have LTT. If you are a first-time home buyer, you may get some of this cost rebated. | Usually a percentage of the purchase price of the home. Use a land transfer tax calculator for specifics. |
GST or HST | If your home is a new construction, then you may be subject to GST or HST, although this amount may already be covered in the builder’s sale price. If not, you’ll have to pay it at closing. You might also qualify for a new housing rebate. | Varies. |
Property taxes, utilities and condo fees. | If the seller has prepaid for any property taxes, utility bills or condo fees, you will need to reimburse them part of the costs starting from when you take ownership of the property. | Varies. |
Legal fees and disbursements | Legal and disbursement fees are any expenses charged by your lawyer as well as any expenses or fees they had to pay on your behalf while working for you. In other words, if your legal fees are high, they may be offset by not paying other closing costs listed in this article directly. Conversely, if your legal fees are small, you are likely paying more closing costs directly. | Between $400 and $2,500. |
Estoppel certificate fee | This is for any Canadians purchasing a condominium or strata unit (exempt in Quebec). The certificate is required by the lawyer for the closing transaction of the purchase. | Up to $350. |
As you can see, there are plenty of factors built into closing costs. While not all of these fees may apply to your specific situation, it’s good to keep these costs in mind and factor them into your budget when looking to buy a home.
DIVE EVEN DEEPER
Clay Jarvis
