Buying a home can be a huge financial commitment, and will probably require you to take out a mortgage. Before you can move into your new home, though, you’ll have to pay mortgage closing costs.

Let’s go through what closing costs are, what they consist of and how much you can expect to pay.

What Are Closing Costs On A House?

Closing costs are the upfront administrative and legal fees associated with a real estate transaction. These can include inspection and appraisal fees, as well as insurance and tax expenses. We’ll get into more detail later on regarding the specific costs you might encounter during the closing process.

It’s important to understand that closing costs are separate from your down payment and monthly mortgage payments. Once paid, closing costs are distributed to various parties involved in the transaction for the services they provide.

How Much Are Closing Costs?

Closing costs can vary, but you can expect to pay roughly 1.5% – 4% of the home’s purchase price. For example, closing costs on a $300,000 home could cost you anywhere from approximately $4,500 – $12,000.

That’s only an estimate, of course. Your actual closing costs could be higher or lower, depending on numerous factors. In addition to a home’s purchase price, your closing costs can be influenced by location, the type of home and other variables.

Home buyers should factor estimated closing costs into their home purchasing budget before deciding to make any offers.

Common Mortgage Closing Costs

Below is a list of closing costs that the home buyer is expected to cover. They may not all apply to your situation, but it’s best to be informed in order to avoid any surprises.

Common closing costs in Canada include:

When you purchase a home, the transaction must be administered by a lawyer. Lawyers charge a fee to prepare the necessary documents, make disbursements and register the mortgage with the land titles office. Legal fees can vary considerably but may amount to $2,500 or more, depending on your specific situation.

Land Transfer Tax

Every province in Canada has something called a land transfer tax (LTT), which is a percentage of the purchase price of the home. The percentage varies from province to province, and some municipalities charge much more than others. Land transfer taxes won’t apply to new construction homes.

First-time home buyers are sometimes exempt from paying the land transfer tax, or are able to have some or all of their payment refunded.

Home Inspection Fee

If you had a home inspection done as a condition of your purchase, you as the buyer will be expected to cover that cost. Home inspection fees can vary depending on certain property factors, but you should plan to set aside at least $500 for this service.

A home inspection isn’t mandatory, but it’s often recommended. You could spot major structural issues or other problems before you’re too far into the home buying process.

Home Appraisal Fee

Lenders will often require that an appraisal be completed to confirm that the home you’re buying is valued at or around the asking price. Appraisal fees vary, but buyers can plan to pay about $500 for this service.

Title Insurance

Some lenders will also require you to buy title insurance with your new home. Title insurance offers protection if you end up in a property ownership dispute after buying your home. It also protects against financial liability related to property defects missed during the title search.

The cost for this insurance can be upward of $300. Your lawyer will typically work on this for you and add the expense to their fee at closing.

Other Closing Costs Buyers May Owe

The above closing costs are common for home buyers and often required by law, but there are some closing costs only certain buyers will pay depending on the property they’re purchasing or other factors.

Talk to your real estate agent or lender about whether you’ll pay the following:

Mortgage Default Insurance And Provincial Sales Tax

You’ll be required to buy mortgage default insurance if you put less than 20% down on your home purchase. This is to cover your lender in the event that you stop making payments and ultimately default on your mortgage. You can purchase default insurance through the Canada Mortgage and Housing Corporation (CMHC), Sagen or Canada Guaranty.

Mortgage default insurance premiums aren’t usually considered a closing cost, as they’re typically rolled into your mortgage payments. Alternatively, buyers may have the option to pay the entire premium upfront at closing. This could equal 0.6% – 6.5% of your loan amount.

Buyers living in certain provinces will be required to pay a Provincial Sales Tax (PST) on their CMHC insurance premium, the amount of which can vary based on location.

Property Taxes

Property taxes are a recurring expense, not a closing cost. That said, there are times when you may be required to pay a portion of property taxes at closing. This can also depend on the municipality in which you reside.

Let’s say you’re purchasing a property in the middle of the year, but the seller has already paid the property taxes to the municipality for the full year. In this instance, you’ll be responsible for reimbursing the seller for taxes paid for the portion of the year that they won’t own the home. This amount may be included in the closing costs as a credit to the seller.

Non-Resident Speculation Tax (NSRT)

Home buyers who aren’t Canadian citizens or permanent residents may have to pay the Non-Resident Speculation Tax (NSRT) as part of their closing costs. The NSRT applies to properties purchased in certain parts of Ontario and specifically designated land containing at least one single-family residence. Townhouses, condominiums, detached and semi-detached houses are considered single-family residences for NSRT tax purposes.

If the NSRT applies to you and your new home, you’ll be charged 25% of your home’s value. Homeowners may receive tax refunds for the NSRT if and when they become a permanent resident of Canada.

Note that the Prohibition on the Purchase of Residential Property by Non-Canadians Act (effective January 1, 2023 to January 1, 2027) prohibits non-Canadians from purchasing certain residential properties in Canada. Even if you’re exempt from this prohibition and able to buy a property in Canada, you may still have to pay the NSRT unless you qualify specifically for exemption from the NSRT.

GST/HST On New Construction Housing

While building a new home won’t incur any land transfer taxes, you’ll still be subject to a federal goods and services tax (GST) or harmonized sales tax (HST), depending on where you live. If the builder has included the GST/HST in the purchase price, you can finance it with the mortgage. If they didn’t, it becomes part of your closing costs. 

GST/HST rates can vary depending on the province the home is located in. If you’re unsure whether you owe money for the GST/HST, contact the seller or your lawyer.

Property Survey

Your lender may require you to provide an up-to-date property survey that identifies your new home’s property lines and boundaries. The seller may already have a survey provided, but if it’s considered out-of-date, you’ll likely pay to have a new survey done.

Property surveys can be quite expensive, averaging around $1,500 – $6,000 depending on the size of the property.

Rural Property Closing Costs

Homes in rural areas may accrue additional closing costs for a buyer. If you’re purchasing a rural property, your lender may require that the well water be tested along with the home’s septic system, to ensure both are in good working condition. Property surveys may also be required in more rural areas.

Ways To Reduce Closing Costs

While you always need to budget for closing costs, here are a few ways they can be reduced:

  • Shop around and compare legal fee rates before choosing a lawyer.
  • Look into your eligibility for first-time home buyer rebates and programs.
  • Search for less expensive homes so your closing costs are lower. 
  • Make a down payment of at least 20% on your new home to avoid mortgage default insurance costs. 
  • Negotiate with the seller to have them cover some of the closing costs. 

Your real estate lawyer will be able to tell you all of the closing costs you’re responsible for after your mortgage is approved.

Who Pays For Closing Costs In Canada?

Most closing costs, like the common ones listed above, are covered by the buyer. Sellers will incur their own closing costs related to legal fees, real estate commissions and other expenses for selling their home.

You’ll pay your closing costs, along with your down payment, when you meet with your lawyer to sign the mortgage registration documents. This is usually done about a week or so before the purchase closing date. Your lawyer will advise you in advance of the total payment required, and they will disburse the various amounts to the proper recipients.

The Bottom Line

Closing costs are largely paid for by the home buyer and can cost up to 4% of your home’s purchase price. It’s important to plan your home-buying budget for these upfront costs so you can be fully prepared for the closing process. Talk with your lawyer to know what closing costs apply to you and how much you’ll owe. If possible, consider any ways you can reduce what you’ll owe.

Feeling ready to buy your new home? Get started today with Rocket Mortgage Canada, UL (Rocket Mortgage™).