When you're house-hunting for the first time in Canada, all the attention goes to one number: the price of the home and the down payment. But many people get caught off guard on closing day by a set of extra costs they hadn't budgeted for. These are called "closing costs," and they can run from a few thousand to tens of thousands of dollars. Let's walk through them simply and clearly so you're not left short at the crucial moment.
Land Transfer Tax
This is usually the biggest hidden cost. Almost every province takes a percentage of the home's price as tax when the title is transferred. The rates are tiered — the more expensive the home, the higher the percentage on that bracket.
First-time buyer rebate
The good news is that in several provinces, if it's your first time buying a home, part of this tax comes back to you. In Ontario, for example, there's a first-time buyer rebate of up to 4,000 dollars, and if the home is in the City of Toronto, a separate municipal rebate is added on top. The amounts and conditions of this rebate differ from province to province, so be sure to check the rules for your own province.
> Note: British Columbia, Alberta and Saskatchewan have different rules; Alberta has no land transfer tax at all, but it charges smaller registration fees.
Lawyer fees and legal work
To close a home purchase in Canada you need a lawyer or notary to transfer the title, review the property's title and move the money. This cost is usually between about 1,000 and 2,500 dollars, plus side costs like title searches and registration. Ask the lawyer's office for the exact figure in advance so you're not surprised.
Home Inspection
Before finalizing the purchase, it's highly recommended to have a professional inspect the home: the roof, plumbing, wiring, foundation and moisture. The cost is usually around 300 to 600 dollars. That's a very small amount compared to catching a ten-thousand-dollar problem before you sign.
Mortgage loan insurance (CMHC)
If your down payment is less than 20%, by law you must get mortgage loan insurance (from CMHC or similar companies). This insurance protects the lender, not you, but you pay for it. Depending on the size of your down payment, the premium is between about 2.8% and 4% of the loan amount; the smaller the down payment, the higher the percentage. This amount is usually added to the loan, but in some provinces you have to pay the sales tax on the premium itself in cash at closing.
Important rules you should know
- The minimum down payment for a home under 500,000 dollars is 5%. For the portion between 500 thousand and one-and-a-half million ($1.5M), 10% is calculated on the excess amount.
- Mortgage insurance is only available for homes under 1,500,000 dollars; above that figure you must put down at least 20%.
- Stress test: the bank tests you at a rate higher than the actual rate — the greater of these two: the contract rate plus 2%, or the set benchmark rate. In other words, you have to show you can handle the payments even at a higher installment.
The rest of the costs, big and small
- Adjustments: if the seller has prepaid the property tax or the building's shared condo fee, you have to repay them your share.
- Home insurance: most lenders want proof of property insurance before closing.
- Moving, hooking up utilities and internet, and initial paint and repairs.
- Water and well testing if the home is outside the city.
FHSA: a helpful tool
The FHSA (First Home Savings Account) lets first-time buyers save money, deduct it from that year's taxes, and pay no tax when they withdraw it for a home. It's a good tool for putting together these very closing costs; check the conditions and the annual limit with an advisor.
Frequently asked questions
How much do all these costs add up to?
A common rule of thumb is to set aside about 1.5% to 4% of the home's price for closing costs. Land transfer tax is the biggest part.
Can these costs be added to the loan?
CMHC insurance is usually added to the loan, but you have to pay the land transfer tax and lawyer fees in cash at closing.
Is the first-time buyer rebate applied automatically?
Usually your lawyer applies it at registration, but remind them yourself too and check the rules for your province.
Does the stress test mean I get a smaller loan?
It means your borrowing capacity is measured at a higher rate, so it's best to know early how much you can borrow.
*This article is for educational purposes only and is not personal financial advice; consult a professional for your final decision.*
Next step
Don't want to be caught off guard on closing day? With our free mortgage calculator at canadafarsi.com/mortgage, estimate your payment and budget precisely, then book a free consultation with our Farsi-speaking specialist to break down all these numbers for you in your own language, clearly and stress-free. Get started today.
www.cmhc-schl.gc.ca · www.cmhc-schl.gc.ca · www.ontario.ca · www.canada.ca