From offer to ownership: Understand closing costs in Canada

Buying a home is one of the most significant, not to mention expensive, purchases a person can make. To buy a home in Canada, you have to come up with a down payment and secure a mortgage (unless you're paying cash), and then there are the closing costs.

Closing costs are fees associated with administering the purchase of a property and they can really add up. Here’s everything you need to know about closing costs in Canada, including whether they’re mandatory, how they’re calculated and — most importantly— how to reduce them.

When you buy a home, there are additional expenses other than your mortgage payment to consider. You might also need to pay for services like a property appraisal, home inspection, legal advice and mortgage default insurance, or levies such as land transfer taxes and provincial sales tax. These (and more) are all considered to be closing costs.

Closing costs range from 1.5% to 4% of the purchase price of your home.¹ This means that for a $750,000 home, a buyer might pay between $11,250 and $30,000. The amount you pay will depend on different factors, including the type of property you purchase and your province or territory. Usually, you have to pay your closing costs before the closing date, and generally, you can’t fold them into your mortgage.

When purchasing a home, buyers should be prepared for a variety of closing costs. Among the most common are land transfer taxes, legal fees, and home inspection fees. These costs can vary depending on location, property value, and service providers. Here's a breakdown of what each cost entails and how they're typically calculated:

You may want to hire a home appraiser to assess the market value of a property prior to making an offer. Your mortgage lender may also require it.

Home appraisers set their own fees, but an appraisal fee is generally between $300 and $600.

A home inspection is a crucial step in the buying process. A certified inspector evaluates the property’s structure, systems, and overall condition, helping buyers avoid costly surprises. Many buyers include a home inspection condition in their offer, allowing them to withdraw if major issues are found.

Home inspectors set their own rates, but you can generally expect to pay between $300 and $1,000, depending on the size and location of the property. It’s best to hire a certified professional registered with the Canadian Association of Home & Property Inspectors.

Real estate transactions involve complex legal documentation, so hiring a real estate lawyer is highly recommended. Indeed, it may be a requirement from your lender if you're taking out a mortgage. Your lawyer will review contracts, ensure the title is clear, and handle the transfer of funds and property ownership.

Lawyers usually charge by the hour or offer a flat fee for real estate transactions. Costs can range from $500 to $1,500, depending on the complexity of the deal and the lawyer’s rates. Always ask for a detailed estimate upfront.

When you're buying a home, it's important to make sure the property doesn't come with any hidden problems. A title search helps with that. It checks for things like unpaid debts, legal claims, or disputes over who owns the property. You can ask your real estate lawyer to do the search, hire a title company, or even do it yourself in some provinces. If your lawyer handles it, they’ll charge for both the service and their time. If you do it on your own, it usually costs between $50 and $200.

Title insurance is related but serves a different purpose. While a title search looks for existing issues, title insurance protects the lender from problems that might come up later, like a missed lien or a case of title fraud. Lenders typically require you to purchase title insurance as a condition of granting you a mortgage. Some forms of title insurance also protect you as the buyer from these potential issues. It’s a one-time cost, usually around $250, and it stays in place for as long as you own the home. 

Unlike other forms of insurance, title insurance is a one-time expense that’s valid for as long as you own your home. Expect to pay around $250.

When you buy a home, most provinces and some cities charge a land transfer tax (LTT), also known as a property transfer tax. It’s typically based on the price of the property and calculated using a sliding scale. That means the more expensive the home, the more tax you’ll pay.

Some provinces offer rebates for first-time homebuyers, which can help lower the cost. Since the rules and rates vary depending on where you're buying, it’s a good idea to check your local government’s website or ask your real estate lawyer for the details.

In certain cities, you must pay a municipal land transfer tax in addition to the provincial land transfer tax. If you buy in Toronto, for example, you’ll have to budget for the Ontario tax as well as the Toronto tax.

Land transfer taxes are based on the sale price of the home but the rate differs by province.

As an example, Ontario has a tiered system. Here’s how to calculate the land transfer tax on a $750,000 home in Kingston, Ontario:

• First $55,000: 0.5% × $55,000 = $275
• Next $195,000: 1.0% × $195,000 = $1,950
• Next $150,000: 1.5% × $150,000 = $2,250
• Remaining $350,000: 2.0% × $350,000 = $7,000
• Total LTT: $275 + $1,950 + $2,250 + $7,000 = $11,475

The provincial land transfer tax is $11,475. Kingston does not charge a municipal land transfer tax.

In contrast, New Brunswick charges a flat fee of 1% of the home purchase price, so you’d pay $7,500 on a $750,000 home.

Just like with other types of insurance, home insurance policies vary from basic to entirely comprehensive and your choices will affect the cost. If you are using a mortgage to buy your home, chances are your lender will require it. If you own your home outright, property insurance is optional, but strongly recommended, given the size of your investment.

The cost of your home insurance depends on the types of coverage you choose, plus the following:

• Your home’s value: Insurance companies consider how much it would cost to replace.
• Age and construction materials of your home: In general, newer homes use updated materials and technologies — and are built to comply with newer building codes — that might result in a different premium than for an older home.
• Location: Insurance premiums are higher if your house is in an earthquake or flood zone, or in a high-crime neighbourhood.
• Amenities: Some amenities, like a backyard swimming pool, will raise your rates.

Your age, whether you have other policies with the same company and if you’ve made claims in the past, can also affect your rates. Companies differ so it pays to shop around for the best option for you.

In most cases, the buyer is responsible for the majority of closing costs, including legal fees, land transfer taxes, title insurance, and home inspections. The seller may cover certain costs, such as real estate agent commissions or repairs agreed upon during negotiations. It’s important to review your purchase agreement and speak with your real estate lawyer to understand exactly who is responsible for what in your specific transaction.

The cost and quality of service providers like insurance companies, lawyers, and home inspectors, vary. Shop around for the best option for you. Also look into money-savers like group discounts. Veterans, for example, may qualify for preferred rates. Check with your alumni and professional associations.

You can save on your home insurance by making small investments. For example, many insurers offer a lower rate if you have home security, smoke and carbon monoxide detectors or backwater valves. Good maintenance and upgrades to old materials can yield savings. Contact your broker for more ways to lower your policy cost.

There’s a lot to think about when you’re buying a home, but a little organization goes a long way. Some services, like home inspectors, for example, book far in advance. Take advantage of early-bird rates by booking well in advance.

Find out if you’re eligible for any assistance programs to help with your costs. Some examples are:

• Rebates on land transfer taxes: Some provinces, like Ontario, offer rebates on a portion of the land transfer tax if you are eligible. If you’re a first-time homebuyer or buying certain types of land such as a farm, you might be eligible.
• Closing cost assistance programs: Most provinces have some sort of down payment assistance program that can help keep things affordable. Some, like Prince Edward Island, offer grants to lower-income Canadians to help with their closing costs, and they don't need to be repaid. Research what's available in your region.

Buying a home is a major life event and a significant expense, so it pays to have a solid plan for managing your closing costs. Think ahead about how you'll budget for everything from legal fees and inspections to post-closing expenses like moving costs. While not always considered part of traditional closing costs, moving expenses can still make a big impact on your overall budget.

Talk to a Scotiabank home financing advisor for help navigating your real estate journey.