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Buying a Home? Don’t Forget These Closing Costs

Jordann Brown

Mar 08, 2022 5 min read

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    Buying a home is an exciting adventure, though it does come with a hefty price tag, even beyond the down payment. Unfortunately, most of the time, we get so caught up with the home’s purchase price that we overlook the other costs attached. But ignoring these costs is a mistake. These costs, known as closing costs, can add up pretty quickly. Here’s what you need to know about closing costs, including how much to budget.

    What are Closing Costs?

    Closing costs are any legal and administrative fees that you must pay upon closing the deal on your new home. Some closing costs are mandatory, like paying your lawyer to complete the transaction. However, some are optional or specific to the type of home you purchase. While you only pay closing costs once, they can add up to thousands of dollars, so you’ll want to budget for them accordingly.

    How Much Should I Budget for Closing Costs?

    So, how much should you expect to pay on closing costs? How much you’ll pay depends on several factors, including where you will be living and what type of home you are buying. Typically, closing costs will add an extra 1.5% and 4% on top of the purchase price of your home.

    To use an example, if you purchase a home for $500,000, then you can expect closing costs to be anywhere between $7,500 and $20,000. As you can see, these are pretty large sums of money to be added to the purchase price of your home, which is why it’s essential to factor in these costs when figuring out your budget.

    Common Examples of Closing Costs

    These are some of the most common examples of closing costs and estimates of the prices you can expect to pay for each.

    Home Inspection

    A home inspection is an optional cost, but it is highly recommended to do one. A home inspection will determine the overall safety and working order of the home you plan to purchase. This way, if there are any significant problems, you have that information ahead of time and can decide if you still want to buy the home and how much you are willing to offer. Pricing for home inspections will depend on the age of the home, its size, and its location. Home inspections in Ontario usually fall between $300 and $600.


    The deposit is part of your down payment and must be made when you make an Offer to Purchase a home. This deposit proves to the seller that you are serious about buying the property and that you have the financial means to do so. There is no minimum amount required for the deposit.

    Land Transfer Tax

    Land transfer tax (abbreviated to LTT) is a provincial or municipal tax charged on every property upon purchase. It is calculated as a percentage of the value of the property. However, if you are a first-time homebuyer, you might get rebated some of that cost.

    In Ontario, the LTT tax rates are as follows:

    •  0.5% up to and including $55,000

    • 1% over $55,000 up to and including $250,000

    • 1.5% over $250,000 up to and including $400,000

    • 2% on amounts over $400,000

    • $2.5% on amounts over $2 million when the land contains 1 of 2 single-family residences

    Some cities (like Toronto) impose a municipal LTT on top of the provincial LTT, so be sure to double-check your local regulations. Your real estate lawyer should be able to advise you.

    Legal Fees

    You will have to pay any legal and disbursement fees to your lawyer on closing day. The legal fees cover transferring the title of ownership from the old owner to you and handling transferring the funds for the home sale. The legal fees you’ll pay will vary based on your specific case and by province or municipality. Legal fees can be as low as $500 or up to $1500 and higher.

    Optional Closing Costs

    As mentioned at the beginning of this article, some closing costs are optional or specific to the property that you are buying. Here are some optional categories that might factor into your closing costs.

    Prepaid Utility Bills

    If the seller has pre-paid any utility bills related to the property, you will need to reimburse them. Reimbursement involves doing some calculations and should start from when you take ownership. Your real estate lawyer will handle these calculations and let you know what you owe.

    Prepaid Property Taxes

    Just as the seller might have pre-paid utility bills, they may also have pre-paid property taxes and condo fees. They will need to be reimbursed for any amount after you take ownership. Again, your real estate lawyer will calculate what you owe.


    A home appraisal is when you have an unbiased professional come in and determine the home's value. A home appraisal is sometimes required by your lender to secure financing. Factors include the condition and age of the home, the size of the property, and location. A home appraisal in Ontario costs between $300-$700.

    Well and Septic Inspections

    Rural properties may have a well and septic tank. These are critical parts of the home’s infrastructure and should be inspected and tested to ensure that they are in proper working condition. This cost can be negotiated with the previous owner and listed in your Offer to Purchase. In Ontario, this will cost around $1000 for both.

     These are just a few of the potential closing costs that may come with your new home. As mentioned earlier, your best bet is to budget up to 4% for closing costs to be on the safe side. If you’re also selling your home, you’ll pay closing costs to sell your home too, so it’s best to budget even more in that case.

    Jordann Brown
    Jordann Brown

    Jordann Brown is a personal finance expert who writes on topics such as debt management, homeownership and budgeting. She is based in Halifax and has written for publications including The Globe and Mail, Toronto Star, and CBC. Jordann is the founder of the popular personal finance blog, My Alternate Life.

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