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Closing Costs Overview
Closing costs, ranging from 1.5 to 4% of the purchase price, are the legal and administrative costs you will need to pay when your house closes. In addition to closing costs, there are other expenses and/or events that may require a cash outlay before, on or after your house closes. We will outline these in detail to ensure these often-unexpected costs do not sneak up on you.
Cash outlays required before your mortgage closes
• Home Inspection Fee. It is highly recommended that you contract a home
inspection as a condition of your Offer to Purchase. A home inspector will
assemble a report on the condition of the home for a fee of around $500,
depending on the complexities of the inspection.
• Deposit. A deposit that counts towards your down payment is required when
you make an Offer to Purchase. A deposit shows the seller you’re serious and
committed to buying their property. It signals that you have the financial
means to make the purchase and you’re comfortable taking on some level of
risk until the deal closes. Unlike your down payment, there is no minimum
required amount for the deposit.
Costs financed in your mortgage
Mortgage default insurance, or CMHC insurance, is not normally considered a
traditional closing cost as it is added to the total mortgage you require and
amortized over the life of your mortgage. We have chosen to include it here to
point out the major difference between it and traditional closing costs: it does not
require a cash outlay upon closing.
• Mortgage default insurance. If you purchase a house with less than a 20%
down payment, you will be required to buy mortgage default insurance,
commonly referred to as CMHC insurance. This protects the lender in the
case the borrower, defaults on the loan.
Mandatory closing costs covered by the home buyer
The following is a list of closing costs that are incurred by the home buyer
• Land Transfer Tax. Calculated as a percentage of the purchase price of your
home, all provinces have a Land Transfer Tax (LTT) payable on closing, with
the amount varying in each province. Some cities, such as Toronto, also have
a municipal LTT.
• Legal Fees and Disbursements. You can expect to incur a minimum of
$500 (plus GST/HST) on legal fees, which account for the preparation and
recording of official documents. Find a residential real estate lawyer with
• Title Insurance. Today, most lenders require title insurance to protect against
losses in the event of a property ownership dispute. This is purchased
through your lawyer/notary and costs $100 – $300.
• PST on CMHC insurance. Though CMHC insurance itself is financed
through the mortgage, PST on the insurance must be paid in cash at the time
The following is a list of closing costs that are incurred by some home buyers as
they are only applicable to certain properties
• Septic tank. If the house has a septic tank, it should also be tested to ensure
it is in good working order. Once again, you can negotiate the cost with the
previous owner and list it in your Offer to Purchase.
• Water Tests. If the home has a well, you will want to test the quality of the
water and ensure there is an adequate supply, as well if the water is potable.
You can negotiate these costs with the previous owner and list them in your
Offer to Purchase.
• Estoppel Certificate Fee (does not apply in Quebec). A certificate fee may
be payable if you are buying a condominium or strata unit, and could cost up
Mandatory closing costs often covered by the lender
• Appraisal Fee. An appraisal, which is an estimate on the value of your home,
is often covered by your mortgage lender. An appraisal is performed to certify
the lender of the resale value of the home in the case you default on the
mortgage. The cost is usually between $250 and $350.
Other costs to consider
• Property Insurance. Property insurance, which covers the cost of replacing
your home and its contents, must be in place on closing day. This insurance
is often paid in monthly or annual premiums.
• Prepaid Utility Bills. You may need to reimburse the previous owner of your
property for prepaid costs such as property taxes, utilities and so forth.
• Property taxes. Property tax is calculated as a percentage of your home
value, varies by municipality and must be paid each year. The residential
property tax rate in Toronto for example is 0.83%, and on a $400,000 home,
would be equal to $3,320 per year. You may need to reimburse the previous
property owner if he/she has already paid property taxes for the full year. You
are also given the option to set-up an automatic payment plan with you
lender. Your lender will set up an account for you, collect an additional $277
per month ($3,320 / 12 months) and then pay property taxes on your behalf.
Though by no means necessary, some homeowners find this service
extremely valuable for budgeting purposes.
Closing Day is the day you finally take legal possession of your home. It’s
important the bulk of your administration is completed by this point including
transferring your down payment to your lawyer. Transferring down payment
funds, especially from your RRSP can take time, and should be done several
days before close.
On closing date, the following events will take place:
• Your lender will provide the mortgage funds to your lawyer/notary.
• You must provide, your down payment less the deposit, to your lawyer/notary
along with the closing costs.
• Your lawyer/notary pays the previous owner, registers the home in your
name, and gives you the deed and keys to your new home.
Congratulations! You are now ready to move in.