Closing Costs: The Cash You Need Beyond Your Down Payment

Why closing costs catch buyers off guard

Most first-time buyers focus their saving on the down payment because it's the biggest, most visible number in the deal. Closing costs get less attention because they're a scattered collection of smaller charges from different parties — a lawyer, a title insurer, a municipality, a home inspector — rather than one number a lender quotes up front.

A widely used rule of thumb in the Canadian mortgage industry is to budget roughly 1.5% to 4% of the purchase price for closing costs, on top of your down payment. On a home in the mid-to-high six figures, that can mean several thousand dollars of extra cash. The exact figure depends heavily on your province and municipality, since land transfer tax is usually the single largest piece of it.

This money generally cannot be rolled into your mortgage. Most lenders require you to show these funds available separately from your down payment, as part of confirming you can actually complete the purchase on closing day.

The big-ticket items

• Land transfer tax: charged by most provinces (and by some cities, notably Toronto, as an added municipal tax) as a percentage of the purchase price on a sliding scale. This is usually the single largest closing cost. Rates and first-time buyer rebates vary by province, so confirm the current rates and any rebate you may qualify for directly with your provincial or municipal government before you budget a number.
• Legal fees and disbursements: a real estate lawyer (or notary in Quebec) handles the title search, mortgage registration, and closing paperwork. Expect a flat fee plus disbursements — the lawyer's out-of-pocket costs like registration and search fees — billed as one combined invoice.
• Title insurance: a one-time premium that protects you and your lender against title defects, fraud, or survey issues. Most lenders require it, and it's usually arranged through your lawyer.
• Home inspection: technically paid before closing, during your conditional period, but it belongs in the same mental bucket of pre-ownership cash outlay. Skipping it to save money is generally not worth the risk on a resale home.
• Appraisal fee: your lender may require an appraisal to confirm the home's value supports the mortgage amount; sometimes the lender covers this, sometimes you do.

The smaller items that add up

• Property tax and utility adjustments: on closing day, your lawyer calculates who owes whom for prepaid property tax, condo fees, or utilities the seller already paid for a period you'll now own the home. This can go either way, but budget for it as an amount you might owe.
• Provincial sales tax on mortgage default insurance: if your down payment is below 20% and you're paying for mortgage default insurance, some provinces charge sales tax on that premium, due at closing rather than added to the mortgage.
• Condo status certificate fee: if you're buying a condo, expect a fee for the status certificate your lawyer reviews to check the building's financial health and any special assessments.
• Moving costs, changing your address, and immediate move-in expenses (locks, basic repairs, appliances) aren't technically closing costs, but they hit your bank account in the same week and deserve their own line in your budget.
• Property insurance: most lenders require proof of home insurance in place as of closing day, and the first premium payment is often due immediately.

How to build your closing-cost budget

Start with the low end of the 1.5%-to-4% range and adjust upward if you're buying in a province or city with higher land transfer tax, or if you're buying a condo (status certificate fees and adjustments tend to push condo closing costs higher than freehold).

Ask your lawyer for a written estimate as soon as you're under contract — most will give you a breakdown before closing once they know the purchase price, your province, and whether you're a first-time buyer eligible for any rebate.

Keep this cash entirely separate from your down payment funds and don't count on selling other investments at the last minute to cover it; give yourself a buffer, since adjustments and disbursements are often estimates until the final statement of adjustments arrives days before closing.

If cash is tight, it's better to adjust your target purchase price downward than to arrive at closing short on funds — a shortfall at that stage can delay or jeopardize the deal.

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