Understanding Closing Costs When Buying a Home in Canada

You’ve saved for years, found the perfect home, and finally made an offer. However, just when you think you’re all set—surprise! There are extra costs to pay before you get the keys. These are called closing costs, and they can catch many buyers off guard.

With closing costs in Canada, you will find a mix of legal fees, taxes, and other expenses that add up quickly.

This guide breaks it all down in simple terms, so you will know exactly which closing costs in Canada to expect and how to budget for them.

What are closing costs?

Closing costs in Canada are the final expenses you will need to pay before officially taking ownership of your new home. They cover all legal, administrative, and tax-related fees that come with transferring a property from the seller to the buyer.

However, these costs are not part of your mortgage; they are additional expenses that must be paid upfront at closing.

Since these fees cover important services like legal paperwork, title registration, home inspection, and much more, they are not optional. Every homebuyer in Canada must pay closing costs to complete the purchase.

The average closing costs in Canada range from 1.5% to 4% of the home’s price. That means if you’re buying a $500,000 home, you should budget an extra $7,500 to $20,000.

Understanding closing costs when buying a house in Canada enables you to financially prepare and be ahead of any last-minute surprises.

A Breakdown of Common Closing Costs in Canada

While closing costs may not be as exciting as picking out furniture, they are just as important. Here’s a breakdown of the most common costs to prepare for:

• Land Transfer Tax

This is one of the biggest closing costs in Canada that buyers face. It’s a tax paid to the province (and sometimes the city) when a property changes hands. The amount depends on where you’re buying. Some provinces charge more than others, and a few, like Alberta and Saskatchewan, don’t charge this tax at all.

In Ontario, the land transfer tax is based on the purchase price of the home and is calculated in tiers:

• 0.5% on the first $55,000
• 1.0% on the portion from $55,000 to $250,000
• 1.5% on the portion from $250,000 to $400,000
• 2.0% on anything over $400,000 (for single-family homes)

Let’s say that you’re buying a $500,000 home in Ontario:

• The first $55,000 is taxed at 0.5% = $275
• The next $195,000 ($55,000 to $250,000) is taxed at 1.0% = $1,950
• The next $150,000 ($250,000 to $400,000) is taxed at 1.5% = $2,250
• The remaining $100,000 (over $400,000) is taxed at 2.0% = $2,000

Total land transfer tax: $6,475

If you’re buying in Toronto, you will pay this amount twice due to the city’s additional land transfer tax, bringing the total to $12,950. That’s why the land transfer tax can be one of the most expensive closing costs when buying a house in Canada, and is something buyers should budget for in advance!

• Legal Fees

Buying a home involves a lot of paperwork, and you will most likely need a lawyer to handle it. Legal fees, which are part of closing costs when buying a house in Canada, cover things like title searches, contract reviews, and mortgage registrations. These usually cost between $1,000 and $2,500.

• Home Inspection

A home inspection isn’t legally mandatory, but it is highly recommended, as it ensures there are no hidden issues with the home. Skipping an inspection to save money on closing costs in Canada could cost you much more in the long run if major problems pop up later.

• Title Insurance

Title insurance protects you from any ownership disputes or fraud related to your property. It’s a one-time cost that’s usually a few hundred dollars and is a key part of closing costs when buying a house in Canada.

• Appraisal Fees

Your lender may require an appraisal to confirm the home’s market value before approving your mortgage. This typically costs around $300 to $600 and is a standard part of closing costs in Canada.

• Mortgage Insurance (If Applicable)

If your down payment is less than 20%, you will need mortgage insurance. While this cost is usually added to your mortgage, there may be upfront fees included in closing costs when buying a house in Canada.

Budgeting for Closing Costs Without Surprises

The last thing you want is a surprise bill right before getting your keys. Here is how to budget smartly and stay ahead:

• First, set aside some extra funds for closing costs. As mentioned earlier, the average closing costs in Canada on a $500,000 home could be anywhere from $7,500 to $20,000, which is a big chunk if you’re not prepared.
• Ask your lender, lawyer, and real estate agent for a detailed breakdown of closing costs early in the process. This will help you see exactly what you’re paying for. Some fees, like legal costs, may be negotiable, so don’t be afraid to ask!
• Keep an emergency fund in case of unexpected costs, like last-minute repairs or extra paperwork fees. Many buyers focus only on the home price and forget about closing costs when buying a house in Canada.

Let Canadalend Make It Easier

We understand how closing costs in Canada can be overwhelming, especially when you’re already focused on finding the perfect home—this is where we come in.

As a leading and trusted mortgage broker in Ontario, Canadalend helps buyers simplify the entire home-buying process, including understanding and budgeting for closing costs.

Unlike banks that offer limited mortgage options, our team of expert brokers work with multiple lenders to find the best mortgage for your situation.

Whether it’s the land transfer tax, legal fees, or appraisal costs, we take the time to break down all extra expenses to ensure you are financially prepared for closing costs when buying a house in Canada.

If you’re worried about affordability, Canadalend can also help you explore financing options to cover closing costs in Canada.

We ensure unexpected costs don’t stand in the way of your dream home! Call us today at 1-844-586-0710 or apply online to speak to one of our experts and explore all our simplified home-buying services with ease.