Closing costs: the 1.5–4% on top of the price

You have found your home and your offer has been accepted—congratulations! But before you receive the keys, you will face one more significant expense: closing costs. These one-time fees, taxes, and insurance premiums sit on top of your down payment and typically total 1.5–4% of the purchase price. Understanding each line item now will help you arrive at closing day prepared and without financial surprises.

What Are Closing Costs?

Closing costs are the fees and charges you pay when the sale of your home becomes final. Unlike your down payment, these cannot be rolled into your mortgage and must be paid upfront, usually to your real estate lawyer or, in Quebec, a notary. The term 'closing' refers to the day on which ownership legally transfers from the seller to you.

The main line items are land transfer tax (highest in Toronto and parts of British Columbia), legal or notarial fees, title insurance, home inspection, appraisal, and property tax and utility adjustments. In Ontario and Toronto, land transfer tax alone accounts for the majority of closing costs.

Land Transfer Tax: The Biggest Expense

Provincial and Municipal Rates

A land transfer tax is a provincial or municipal tax levied when someone purchases a property. The tax is normally calculated as a percentage of the property value and is typically paid by the buyer at closing. This tax is calculated using a sliding scale or tiered system where different portions of the purchase price are taxed at different rates.

Almost every Canadian province charges a land transfer tax—the exceptions are Alberta and Saskatchewan, which charge only small title registration fees instead. The tax rates and brackets vary significantly by province and sometimes by city.

If you are buying in Toronto, you face a unique situation. Toronto is the only city in Ontario (and one of only a few in Canada) that charges its own Municipal Land Transfer Tax on top of the provincial tax. This effectively doubles the land transfer tax burden for buyers purchasing within the City of Toronto limits. Buyers in the City of Toronto pay both the Ontario provincial land transfer tax and the Toronto municipal land transfer tax—each following the same tiered structure: 0.5% on the first $55,000; 1% on $55,001–$250,000; 1.5% on $250,001–$400,000; 2% on $400,001–$2,000,000; and 2.5% on amounts over $2,000,000. Additional higher luxury rates apply to homes over $3 million.

First-Time Buyer Rebates

To help offset the cost of land transfer tax, several provinces and municipalities offer rebates to first-time home buyers. These rebates are available in Ontario, British Columbia, Prince Edward Island, and the City of Toronto. Provided you meet the criteria set out by each province or municipality, you could receive a partial or full land transfer tax refund.

In Ontario, qualifying first-time home buyers can receive a rebate of up to $4,000 on the provincial land transfer tax. To qualify, you must be at least 18 years old, a Canadian citizen or permanent resident, and plan to move into the home as your main residence within 9 months of the transfer date. You must also have never owned an eligible home at any time and anywhere.

If you are buying in Toronto, you benefit from two separate rebates. The Ontario provincial rebate is up to $4,000, and the Toronto Municipal Land Transfer Tax rebate is an additional up to $4,475—meaning qualifying buyers can save up to $8,475 in combined land transfer tax relief.

British Columbia offers a more generous exemption for first-time home buyers. Eligible first-time home buyers may qualify for a full property transfer tax exemption on homes valued at $835,000 or less (full exemption on the first $500,000, with a partial exemption phasing out up to $860,000). This is considerably more generous than Ontario's flat rebate.

In Prince Edward Island, eligible first-time home buyers may qualify for an exemption from the Real Property Transfer Tax. To qualify, you must have resided in PEI for 183 consecutive days before purchasing your home, or have occupied your newly purchased home for at least 183 consecutive days. There is no limit on the purchase price for first-time home buyers to receive a full rebate.

Legal, Inspection, Appraisal, and Title Insurance

Real Estate Lawyer or Notary Fees

You will need a real estate lawyer to handle the legal aspects of the transaction, including reviewing contracts, conducting title searches, and registering the property in your name. In Quebec, a notary performs these functions. Legal or notarial fees typically range from $800 to $2,500 and are among the most significant costs after land transfer tax.

Home Inspection

A professional home inspection ensures that the property is in good condition before you buy and is one of the most valuable closing costs. The inspection fee is typically paid directly to the inspector upon completion of the service. Inspection costs typically range from $300 to $1,000 depending on the size and location of the property. While technically optional, a home inspection is highly recommended to avoid unexpected repairs and is often included as a condition in your purchase offer.

Home Appraisal

Your mortgage lender will require a home appraisal to determine the fair market value of the property and ensure the loan amount aligns with the property's actual worth. Home appraisers set their own fees, and an appraisal fee is generally between $300 and $600. In some cases, your lender may pay for the appraisal directly; in others, you will pay and be reimbursed. It is worth asking your lender whether they will waive this charge or cover the cost.

Title Insurance

Title insurance protects you and your lender against issues with the property's title, such as errors in public records, disputes over ownership, title fraud, or encroachments. While not required by law in Canada, title insurance is typically required by mortgage lenders and is purchased through your lawyer for a one-time premium. Title insurance is a one-time premium, paid once at closing with no renewal. For a typical home, expect a cost in the range of $200 to $500, with higher premiums for homes valued above one million dollars. The premium follows the insured value and the insurance provider.

Property Tax and Utility Adjustments

At closing, you and the seller must settle property taxes and utility costs based on the actual closing date. If the seller has pre-paid property taxes or utilities for the year, you must reimburse them for the portion of the year you will own the property. Conversely, if the seller has unpaid taxes or utilities, you may owe less at closing than their last bill. These adjustments can amount to up to $2,000 depending on the property and timing of the transaction.

Your lawyer will calculate these adjustments and include them in your final statement of adjustments, typically provided several days before closing. Even though you will not pay municipal property tax directly at closing, utility and property tax adjustments are a real cost that must be factored into your cash-to-close.

Additional Costs to Budget For

Depending on your situation, you may face other closing costs beyond the core items.

• Mortgage default insurance: If your down payment is less than 20%, you must pay mortgage default insurance issued by the Canada Mortgage and Housing Corporation (CMHC) or a private insurer such as Sagen or Canada Guaranty. The premium is usually added to your mortgage, but provincial sales tax on the insurance premium must be paid upfront in some provinces, including Ontario and Quebec.
• Property survey: Your lender may require an up-to-date property survey if the seller's survey is outdated. Depending on the size and complexity of the property, the survey fee could range from $1,500 to $6,000.
• Condo or strata fees: If you are buying a condo, you may need to pay an estoppel certificate fee (a few hundred dollars) to confirm important details about the unit, including any outstanding fees.
• Title search: Your lawyer will conduct a title search to check for unpaid debts, legal claims, or disputes over ownership. This is often included in your lawyer's fees.

Timing: When Do You Pay?

Closing costs are due at different times throughout the home-buying process. Home inspection and appraisal fees are usually paid directly to the service provider upon completion. Your lawyer will typically provide a final statement of adjustments several days before closing, outlining exactly how much you need to bring to complete the transaction. Most closing costs—land transfer tax, legal fees, title insurance, and property tax and utility adjustments—are collected by your lawyer and paid on closing day.

How to Budget and Prepare

Use the 1.5% to 4% rule as a guideline to calculate your closing costs based on your purchase price. For example, if you are buying a home for $700,000, you should expect to pay between $10,500 and $28,000 in closing costs. In addition to your down payment, set aside funds specifically for closing costs, as they cannot be rolled into your mortgage.

When getting pre-approved for a mortgage, ask your lender to provide an estimate of the closing costs based on your price range and location. Many lenders and mortgage brokers offer free closing cost calculators that account for your specific province, city, and property price. Compare providers for legal services, title insurance, and home inspections, as rates vary significantly.

If you are a newcomer to Canada or an international student, confirm your eligibility for first-time buyer rebates early in the process. You must be a permanent resident or Canadian citizen to claim the Ontario land transfer tax rebate, and similar residency or citizenship requirements apply in other provinces. If you have not yet obtained permanent residence, speak with your lawyer about the timeline and any options available to you.