What are closing costs?

Real estate mortgage & home-buying tips

Your mortgage is just one of the many expenses you’ll have to budget for when purchasing a home. There are also a number of closing costs you must pay upfront, usually before you move in. Closing costs are the legal and administrative fees and disbursements associated with buying a home. Combined together, they typically represent between 3% and 4% of the purchase price, though the number varies by province and city.

Appraisal fee
Real estate mortgage lenders require that a home be appraised before they will issue a mortgage. A professional appraisal ensures the mortgage company is not lending more than the property is actually worth. Appraisal fees range from $300 to $500.

GST/HST
The GST/HST varies by province and type of home. In some provinces, you will pay GST on the purchase price of a newly constructed home. In B.C., Ontario, and the Atlantic provinces, you'll pay an HST consisting of GST and provincial sales tax.

Home inspection fee
While not required by most lenders, a home inspection offers the buyer insight into any potential problems in advance of their purchase. The cost of a professional inspection is generally up to $500 for most homes.

Home insurance
Your mortgage lender requires that you have home insurance to protect against fire and weather-related damage when you legally take possession of your new home.

Land transfer tax
Applicable in most provinces, the land transfer tax is usually a percentage of the purchase price. Some provinces may also charge tax on new construction.

Legal costs
Legal costs include fees for the professional services provided by your lawyer or notary, costs involved in conducting a title search, drafting the title deed and preparing the mortgage, as well as registration fees and other disbursements.

Mortgage default insurance
High-ratio mortgages (those with less than 20% down payment) require insurance against default. The cost is usually added to the mortgage, and ranges from 1.00% to 3.25% depending on the amount of your down payment.

Prepaid property taxes and/or utility bills
Any tax and utility costs that the seller has prepaid must be reimbursed by the purchaser. These are also known as adjustments.

Additional costs after closing
Other costs that you should budget for include moving expenses, storage costs, utility hook-up fees, redirecting mail, new appliances, tools, painting and decorating. It is recommended that you set aside at least $1,000 to $2,000 for these expenses.