Closing Costs: What Home Buyers, Sellers and Homeowners Need to Know
Buying a home is about much more than the down payment and mortgage payment. There are also a number of costs that come up before, during and immediately after closing.
These are commonly referred to as closing costs, and they can vary depending on where you live in Canada, the type of property you are buying, how you are financing it, and whether you are buying, selling or refinancing.
For buyers, a general rule of thumb is to budget approximately 1.0% to 3% of the purchase price for closing costs, although your actual costs could be higher or lower depending on your situation and province.
The good news is that many of these expenses can be estimated ahead of time. We always recommend understanding your closing costs early so there aren't any surprises when it is time to get the keys.
Closing Costs When Buying a Home
Legal Fees
Your lawyer handles the legal side of your purchase, including reviewing the purchase documents, completing title searches, registering the property and mortgage, and making sure the transaction is properly completed.
Legal fees vary depending on the lawyer, the property and the complexity of the transaction. In Alberta, legal costs have increased in recent years, so it is worth getting a current quote from your lawyer before budgeting.
Potential cost: Approximately $2,000 to $3,500 or more, depending on the transaction.
Land Transfer Tax and Land Titles Fees
Land transfer taxes and registration fees vary across Canada.
One important distinction for Alberta buyers is that Alberta does not have a traditional provincial land transfer tax like some other provinces. Instead, buyers pay Land Titles registration fees when the property and mortgage are registered.
Other provinces, including Ontario and British Columbia, have land transfer taxes that can add significantly to the cost of purchasing a home. Some buyers may qualify for provincial rebates or exemptions.
Potential cost: Varies significantly depending on the province and purchase price.
Title Insurance
Title insurance is a one-time policy that protects against certain risks relating to the property's title, such as some ownership disputes, fraud, liens or other title-related issues.
Lenders commonly require title insurance or another acceptable form of title protection as part of the mortgage process. Your lawyer can explain what is included in the policy and whether additional homeowner coverage is available.
Potential cost: Approximately $150 to $500 or more.
Property Appraisal
Depending on the mortgage and lender, an appraisal may be required to confirm the property's market value.
An appraisal is particularly important when the mortgage is not insured or when the lender requires an independent valuation before approving the financing.
Potential cost: Approximately $300 to $600 or more.
Home Inspection
A home inspection is not mandatory, but we strongly recommend considering one when purchasing a resale property.
An inspection can identify potential issues with the home's structure, roof, electrical, plumbing, heating and other major components before you finalize your purchase.
For a new build, the inspection process can be different, but buyers may still want to consider a pre-possession inspection and other inspections appropriate to the property.
Potential cost: Approximately $500 to $800 or more.
Property Tax Adjustments
Property taxes don't necessarily line up perfectly with your closing date.
If the seller has already paid property taxes for a period after you take ownership, you may need to reimburse them for your portion. If taxes are owing, the adjustment may work in the other direction.
Your lawyer will calculate the appropriate adjustment as part of the closing process.
Mortgage Default Insurance
If you purchase with less than 20% down, you will require mortgage default insurance if the mortgage meets the applicable insured-mortgage requirements.
The premium is based on the loan-to-value ratio and is added to the mortgage rather than paid out of pocket.
There can also be provincial sales tax on the insurance premium in certain provinces, which cannot be added to the mortgage and must be paid when the mortgage closes.
Your mortgage professional can explain how this applies to your specific purchase.
Closing Costs When Selling a Home
Selling a home comes with its own set of expenses.
Realtor Commissions
The seller may be responsible for real estate commissions associated with the sale. The amount and structure of the commission are determined by the agreements with the Realtors involved, and applicable taxes may also apply.
This is often one of the largest costs associated with selling a home.
Legal Fees
Your lawyer will handle the legal side of the sale, including preparing the required documents, transferring ownership and ensuring that existing registrations and liens are dealt with appropriately.
Potential cost: Approximately $1,000 to $3,000 or more.
Mortgage Discharge Fees
If you have an existing mortgage, your lender will need to discharge it from the property's title when you sell.
There may be an administrative discharge fee, depending on your lender and mortgage terms.
Potential cost: Varies by lender.
Mortgage Prepayment Penalties
This is one that can catch sellers by surprise.
If you're selling before the end of your mortgage term, you may have a prepayment penalty for breaking the mortgage early.
Depending on the mortgage and lender, this could be based on three months' interest or an Interest Rate Differential (IRD). Some mortgages have different penalty structures, and your specific mortgage contract will determine what applies.
Tip: Before listing your home, ask your mortgage professional to review your mortgage and talk to your mortgage holder to get an estimate any potential penalty.
Repairs or Other Sale-Related Costs
If you've agreed to complete repairs or other work as part of the sale, those costs will also need to be considered.
It's worth factoring these expenses into your overall budget rather than looking only at the sale price.
What About Refinancing?
Closing costs aren't just for buying or selling.
If you're refinancing your mortgage, there can also be expenses associated with replacing your existing mortgage with a new one.
Appraisal
Your new lender may require an appraisal to determine the property's current market value.
Potential cost: Approximately $300 to $600 or more.
Legal Fees
A lawyer will generally be required to register the new mortgage and complete the necessary legal work.
Potential cost: Approximately $1,000 to $3,000 or more.
Mortgage Discharge
Your existing lender will need to discharge the current mortgage.
Potential cost: Varies by lender.
Title Insurance
Your new lender may require title insurance as part of the refinancing.
Potential cost: Approximately $150 to $500 or more.
Prepayment Penalties
If you're refinancing before your existing mortgage term expires, there may be a prepayment penalty for breaking your current mortgage.
This can sometimes be one of the largest costs associated with refinancing, so always find out the penalty before deciding to break your mortgage early.
Don't Forget About the Costs After Closing
It's easy to focus on the costs required to get the keys and forget about everything that comes afterward.
When budgeting for a home, consider setting aside funds for:
Moving expenses
New furniture or appliances
Utility setup
Home insurance
Property taxes
Condo fees, if applicable
Immediate repairs or maintenance
Landscaping or window coverings
Emergency savings
You don't want to use every dollar you have available for the down payment and closing costs and then find yourself with nothing left when something unexpected comes up.
So, How Much Should You Budget?
There isn't one number that works for every home buyer.
Your closing costs will depend on where you're buying, the purchase price, the type of property, your mortgage, and your individual circumstances.
That's why we recommend talking about closing costs early in the home-buying process. We can help you understand which costs may apply to your mortgage, while your lawyer can provide an estimate of the legal and registration costs associated with your transaction.
The Bottom Line
Your down payment isn't the only money you'll need to buy a home.
Understanding your closing costs ahead of time can help you budget properly, avoid last-minute surprises and feel much more confident when you're ready to take possession of your new home.
Thinking about buying, selling or refinancing? Reach out before you make your next move. We're happy to help you understand the numbers and plan ahead.
Closing costs and requirements vary by province, lender and individual circumstances. The examples above are general guidelines and should not be considered a quote. Your mortgage professional and real estate lawyer can provide costs specific to your transaction.
