Our First Home: The Basics of Closing Costs

Our First Home: The Basics of Closing Costs

What are closing costs?

Closing costs are fees you have to pay either before or once the purchase of your home closes. The amount you pay is expressed as a percentage of your home’s selling price. How much you’ll pay depends on your city and province of residence.


Conventionally, closing costs are a combination of the following fees:

  • Land Transfer Taxes
  • Legal Fees
  • Title Insurance Fees
  • Appraisal Fee
  • Property Taxes

I have to pay for mortgage default (CMHC) insurance. Is this a closing cost?

Mortgage default insurance isn’t considered a standard closing cost. It is paid during the entire amortization period of your mortgage. Generally if you paid less than 20% of your mortgage value as your down payment, you are legally required to get insurance.


Why does the down payment have to be paid before closing?

Just like a down payment on a car, a housing down payment is a kind of “security deposit” to the seller. It tells them that you intend to purchase the property. Paying your deposit before closing also communicates that your realtor and real estate lawyer can begin closing procedures.


Down payments aren’t considered a closing cost because they have to be paid and accepted before the closing period arrives on your Offer to Purchase.


What do I have to do before the Offer to Purchase period closes?

You have to have your down payment ready and home inspections completed before your offer can close.


How do I arrange for a home inspection?

Your realtor can help you find a home inspector by making referrals to local inspectors. You may also seek out inspectors independently or by word-of-mouth, but make sure to double-check your inspector’s credentials and client history. You can do this via your province’s organization for registered property and home inspectors or through the Canadian Association of Home and Property Inspectors. To search the register is free of charge. After arranging an appointment, the home inspector will examine your home-of-interest to ensure that it meets your city’s health and safety standards. Once this is complete, you’ll pay a fee for the service and can carry on with other steps in the closing process.


What happens after the offer closes?

When your offer to buy is confirmed, this is called “closing” or a “closing period”. During this time, you can take legal possession of your home. Closing involves you making your down payment and the seller accepting the offer. Your lawyer and realtor will take care of most final legal arrangements. Depending on the type of home you’ve purchased, your occupancy can even start before other units are completed.


What closing costs am I, the buyer, required to cover?

As the buyer of a home, you’re generally required to arrange and pay for the following services before closing time.



Title Insurance: Lenders usually require buyers to purchase title insurance just in case a dispute between you and the seller arises. You can get title insurance through a public notary or from your real estate lawyer.


Legal fees: Your legal fees may vary depending on your location and situation. You can expect to pay within a range between $300–700+. To find a lawyer or firm that specializes in real estate law, try searching your provincial lawyer registry site or asking for recommendations by your realtor.



Land Transfer Tax: A land transfer tax is the amount you pay on any land or real estate bought within Canada. It’s a percentage of the final buying price of your home. You might also have to pay city-based land transfer tax in addition to the federal amount.


Property Tax: Property tax is calculated as a percentage of your home’s value (not the mortgage) and has to be paid on a yearly basis. The seller of your home may require you to compensate them for paying a portion or all of this before closing the offer.


Provincial Sales Tax on Mortgage Default Insurance: You have to pay PST on your mortgage default insurance in cash at the time of closing your offer. Even though your insurance is financed throughout your entire mortgage, paying this tax is mandatory.

For condo buyers

Excluding Quebec residents, if you’re buying a condo, you may also have to get an Estoppel Certificate. You will also be required to pay the fees for it.


What closing costs will my lender have to pay?

Your mortgage lender will have to pay your appraisal fee. The appraisal fee is the estimate on the value of your home. It also guarantees your lender the resale value of your home in case a default occurs.


Additional/Incidental Costs

There are other additional expenses you may wish to keep in mind, such as property insurance and utility bills.Property insurance (or home insurance) covers the cost of replacing items of your home and your home itself. Before closing the offer to your home, you must have a plan and premium set in place.


Utilities are expensive, during the closing period, the seller of your home may have accrued expenses. As a condition of selling the home to you, the seller might ask you to pay for utility costs they’ve taken on during the closing period. If not, it doesn’t hurt to offer the payments as a good-will gesture.


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A Maryland native and Toronto-area transplant/graduate of the University of Toronto, Christine is a content writer at Loanerr. When not writing articles, she's an avid swimmer, cat lover, violinist in a indie band, and a humble food aficionada.