Closing costs are one of the most common expenses to slip through the cracks when it comes to your home purchase. When calculating the price and affordability of your future home, it’s essential that you account for these additional costs in advance as they can add up and impact your overall budget.
What are closing costs?
Closing costs are additional expenses that typically account for 1.5% to 4% of a home’s purchase price. For example, if you’re buying a home worth $880,000, you could pay anywhere between $13,200 to $35,200 in closing costs. These expenses are usually paid when the property title is officially transferred from the seller to the buyer; however, there are some cases when these costs are incurred before the closing date.
What do closing costs in Canada include?
Closing costs in Canada will vary based on the province or city that you’re buying in. They may also vary based on the type of property you purchase, its size, age and other key factors. For example, if you’re looking to purchase a new construction townhome or condo, your closing costs will likely be different than if you were purchasing a resale home.
Here are some of the typical closing costs involved when purchasing a home in Canada:
Home Inspection: This fee covers a formal inspection to ensure everything in the home is in good order, functional and safe before you move in. On average, a home inspection is between $300 and $500.
Home Insurance: This protects you in case of a fire and other natural disasters, and must be purchased before your lender advances your mortgage.
Appraisal Fees: When you apply for a mortgage, your lender may require an appraisal to get an estimate of the property's value. This cost depends on the property’s value, location and size and can typically range from $250 to $350.
Land Transfer Tax: This is a provincial tax that is applied when you buy a home and is calculated based on its purchase price – typically 0.5% to 2.5%. The amount and rules regarding Land Transfer taxes vary depending on the city or province you’re in. For example, if you purchase a home in Toronto, you would be charged a provincial land transfer tax and a municipal land transfer tax. Note: If you’re a first-time home buyer, you could also be eligible for a Land Transfer Tax rebate.
Lawyer Fees: These fees cover the preparation and recording of official documents by a real estate lawyer and can range from $1,200 to $2,000.
Title Insurance: A title insurance policy protects you and your lender from title fraud, municipal work orders, zoning violations and other property defects. This is typically purchased by your Real Estate Lawyer and is included in your lawyer fees. The cost of title insurance is roughly $200 to $300 – depending on your policy and property type.
Closing Adjustments: These costs refer to a variety of possible changes that could take place before closing. For example, if you’re purchasing a newly built home, adjustments could be the cost of driveway paving or the rental of a hot water tank, which may have not been included in your original purchase and sale agreement.
Property Taxes: These taxes are calculated based on various factors including the value of your home, its relative value compared to other homes in your area, as well as its size, age and location. Property taxes are either paid annually or homeowners can choose to pay monthly by embedding their property tax within their mortgage payments. If you’re buying a resale home, you may have to repay the previous homeowner at closing if they paid the property taxes in full for the year.
GST or HST: New construction and substantially renovated homes may be subject to GST or HST. If you are required to pay GST and HST, you may also qualify for a new housing rebate.
Try Our Closing Cost Calculator
Are you interested in a particular home and want to figure out the estimated closing costs? Use our Closing Cost Calculator to help you out.
At Homewise, our goal is to help homebuyers understand everything involved in the mortgage and buying process. A dedicated mortgage advisor will guide you at every step so you’re prepared to handle all of the expenses that come with buying a home with no surprises. Apply online with us in just five minutes to get started.
Check out this video from our Mortgage Academy series to learn more about closing costs.