Closing Costs

What Are Closing Costs?

Closing costs are fees and expenses incurred when finalizing the purchase of a home. These costs cover legal, administrative, and government services necessary to transfer title and complete the transaction. Closing costs are separate from your down payment and mortgage amount.

Typical closing cost range: 1.5% to 4% of the purchase price. On a $400,000 home, expect $6,000-$16,000 in closing costs. These must be paid by the closing date.

Main Components:

• Land transfer tax (varies by province; 0% in some provinces)
• Legal fees for lawyer or notary
• Title insurance
• Property tax adjustments (for previous owner's prepaid taxes)
• Appraisal fee
• Mortgage insurance (if down payment <20%)
• Home inspection (if you paid separately, not built into closing)
• HST on new construction homes
• Title search and registration fees

Land Transfer Tax by Province

Land transfer tax (also called land tax, real estate transfer tax, or property tax on transfer) is a provincial tax on the sale of real property. Rates and exemptions vary significantly by province.

Provincial Land Transfer Tax Rates:

Example (Ontario): Purchasing a $400,000 home as a first-time buyer results in ~$3,985 in land transfer tax (with $8,475 exemption applied). Without first-time buyer status, you pay ~$12,460.

First-time buyer status: Eligibility varies by province. Generally, you must not have owned a principal residence in Canada in the 4 years preceding purchase. Some provinces like Manitoba and Saskatchewan offer full exemptions for first-time buyers at any price point.

Legal Fees and Lawyer Costs

A real estate lawyer (or notary in Quebec) is necessary for title search, title transfer, mortgage preparation, and closing. Legal fees cover the lawyer's work and associated costs.

Typical Legal Fees:

• Flat fee: $1,000-$2,500 depending on province and property complexity. This is most common.
• Hourly rate: $250-$400/hour for complex transactions or if complications arise (title issues, survey disputes).

What Legal Fees Include:

• Title search and examination
• Preparation of mortgage documents
• Title transfer and registration
• Property survey review (if applicable)
• Condo/status certificate review
• Closing coordination and funds transfer

Additional Disbursements:

Lawyers often invoice for disbursements (out-of-pocket costs incurred on your behalf):

• Title search fee: $50-$150
• Land titles registration: $150-$300
• Mortgage registration: $150-$300
• Condo status certificate order: $20-$50
• Property tax certificate: $20-$50
• Courier/delivery fees: $20-$50

Total legal disbursements typically range from $500-$1,000 on top of the lawyer's fee.

Shop around: Legal fees are negotiable. Obtain quotes from 2-3 lawyers. Many offer fixed-fee quotes for standard residential purchases.

Title Insurance

Title insurance protects you from defects in the property's title (ownership history) that could affect your ownership rights. A clean title is fundamental to property ownership; title insurance provides protection if hidden title defects emerge later.

What Title Insurance Covers:

• Undisclosed liens: Claims against the property (unpaid taxes, contractor liens, judgment liens) not discovered in title search
• Forgery or fraud: Previous owners' signatures forged or fraudulent deeds
• Boundary disputes: Disagreements over property lines and ownership boundaries
• Missing heirs: Unknown heirs claiming ownership rights
• Zoning violations: Property use violations discovered after purchase
• Easements not disclosed: Rights granted to utilities or neighbors not revealed during purchase

Cost and Coverage:

Title insurance is a one-time premium (typically $200-$500 depending on purchase price and provider). Coverage lasts as long as you own the property. If a title defect is discovered, the insurer pays legal fees and damages to resolve the issue.

Lender's requirements: Many lenders (especially for insured mortgages) require title insurance to protect their interest. You may negotiate with the seller to cover this cost.

Property Tax Adjustments

Property taxes are typically paid annually or in installments. When you purchase a home mid-year, the seller may have pre-paid property taxes covering the entire year. At closing, the seller receives a credit for taxes they prepaid after the closing date.

How Property Tax Adjustments Work:

Example: You purchase a home on September 1st. Property taxes for the year are $4,800 (paid by the seller in advance). From September 1 to December 31 (4 months), the owner is you. The seller is entitled to a credit for those 4 months: $4,800 × (4/12) = $1,600. At closing, you reimburse the seller $1,600.

The seller may also receive a credit for utilities prepaid (hydro, gas) if closing is mid-billing cycle.

Impact on closing costs: Property tax adjustments may increase or decrease the amount you owe at closing, depending on the closing date and seller's prepayment status. Your lawyer will calculate these adjustments and itemize them in your closing statement.

HST on New Builds

When purchasing a newly constructed home directly from a builder, HST (Harmonized Sales Tax, 5-15% depending on province) is charged on the purchase price. This is a significant closing cost often overlooked by first-time buyers.

HST Rates by Province:

• Ontario, New Brunswick, Nova Scotia: 15% HST
• British Columbia, Saskatchewan, Manitoba: 5% GST (no provincial tax)
• Quebec: 5% GST + ~9.975% QST = ~14.975%
• Alberta: 5% GST only

Example: Purchasing a $400,000 new home in Ontario triggers 15% HST = $60,000. This is a substantial additional cost.

First-Time Buyer HST Exemption:

Many provinces offer HST/GST exemptions for first-time buyers purchasing new homes. These exemptions can reduce or eliminate HST:

• Ontario: 50% HST rebate (not exemption) for homes under $433,400; rebate is $24,000 maximum
• British Columbia: Full GST exemption for new homes under $500,000 for first-time buyers
• Alberta: No provincial tax (only 5% GST applies); federal first-time buyer rebate available on GST

At closing: If you qualify for an exemption, the builder applies it directly to the purchase price. If you claim a rebate, you typically file for it after closing. Ensure the builder confirms eligibility and applies any available credits.

Appraisal, Inspection, and Other Fees

Several additional fees may appear at closing, depending on your lender and specific circumstances:

Appraisal Fee

Your lender orders an appraisal to verify the property's value matches the purchase price. Fee: $250-$500. The lender may absorb this cost or pass it to you.

Home Inspection

If you paid for home inspection separately (not included in down payment), this cost is separate from closing costs. Cost: $300-$800 depending on home size and location.

Mortgage Insurance Premium

If your down payment is below 20%, CMHC/Sagen insurance is required. Premium: 1.6%-3.6% of mortgage amount. This is capitalized into the mortgage (added to your loan) rather than paid upfront at closing.

HOA Fees or Condo Fees

If purchasing a condo or in a community with an HOA, you may owe prepaid fees for the remainder of the closing month and any arrears from the previous owner.

Utility Deposits

Some utilities (hydro, gas) may require deposits when opening accounts. Cost: $0-$500 depending on utility and consumption history.

First-Time Buyer Rebates and Savings

Several government programs and rebates are available to first-time home buyers, reducing closing costs:

Land Transfer Tax Exemptions

Most provinces offer land transfer tax exemptions or rebates for first-time buyers:

• Ontario: $8,475 exemption on homes under $500,000
• British Columbia: Full exemption on homes under $500,000
• Manitoba and Saskatchewan: Full exemption for all prices

HST/GST Rebates

First-time buyers purchasing new construction homes may qualify for HST/GST rebates. Ontario offers a $24,000 maximum rebate; BC offers full GST exemption on homes under $500,000.

Federal Home Buyers' Amount

First-time buyers can claim a $10,000 non-refundable tax credit on their federal tax return, worth ~$1,500-$2,000 in tax savings (depending on bracket).

Total first-time buyer savings can exceed $30,000-$50,000 when combining land transfer tax exemptions, HST/GST rebates, and federal credits.

FHSA and RRSP HBP Benefits

FHSA contributions generate tax refunds (30-50% depending on bracket), which can be reinvested to reduce down payment savings needed. RRSP HBP allows tax-free withdrawal of up to $60,000.

Key Takeaways

• Closing costs range from 1.5-4% of purchase price and include legal fees, land transfer tax, title insurance, and various disbursements.
• Land transfer tax rates vary by province; first-time buyers often qualify for exemptions or rebates reducing this cost significantly.
• Legal fees typically range from $1,000-$2,500 plus $500-$1,000 in disbursements. Shop around and negotiate flat-fee quotes.
• Title insurance (one-time premium of $200-$500) protects against hidden title defects and is often required by lenders.
• Property tax adjustments are calculated at closing to reimburse the seller for prepaid taxes after your ownership date begins.
• New construction homes include HST (5-15% depending on province). First-time buyer exemptions and rebates can reduce or eliminate this cost.
• First-time buyers can save $30,000-$50,000 through land transfer tax exemptions, HST rebates, federal tax credits, and FHSA/RRSP benefits combined.
• Request an itemized closing statement from your lawyer weeks before closing. Review all fees and ask questions about unexplained charges.