Christopher Liew is a CFP®, CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of daily Canadian readers at Blueprint Financial. Ask any first-time buyer what they’re saving for, and they’ll likely say the down payment. It’s the biggest number, no question. But it’s not the whole bill. Plenty of buyers scrape together every dollar for the down payment, then get blindsided by a second wave of costs in the final weeks before closing. Some of these bills arrive with little warning, and most must be paid in cash. Below, I’ll break down the closing costs first-time buyers underestimate most, and how to budget for them so moving day doesn’t start with a financial scramble. Why this matters right now The national average home price came in at $696,078 in June, according to Canadian Real Estate Association data reported by CTV News, and sales have been slowly picking up as buyers come off the sidelines. Here’s the part that often gets missed: closing costs typically run 1.5 to 4 per cent of the purchase price, according to Scotiabank. On a $750,000 home, that’s between $11,250 and $30,000 on top of your down payment. 1. Land transfer tax This is usually the single biggest closing cost, and I find many first-time buyers have never heard of it until their lawyer brings it up. Most provinces charge a tax when a property changes hands, calculated as a percentage of the purchase price, and it’s due in full on closing day. The good news is that several provinces offer first-time buyer relief. In Ontario, for example, qualifying first-time buyers can get a refund of up to $4,000, which wipes out the tax entirely on the first $368,000 of the purchase price. Toronto buyers face a second municipal land transfer tax on top, with its own rebate. Check your provincial and municipal rules early, because the eligibility criteria are stricter than people assume. 2. Mortgage default insurance, and the sales tax on top If your down payment is under 20 per cent, you’re paying for mortgage default insurance. With 5 per cent down, the premium is 4 per cent of your loan amount, according to CMHC. On a $475,000 mortgage, that’s $19,000. Most buyers relax when they hear the premium gets added to the mortgage rather than paid upfront. But here’s the catch: in Ontario, Quebec, and Saskatchewan, the premium is subject to provincial sales tax, and that tax cannot be added to your loan. It’s due in cash at closing. On a $19,000 premium, that’s a four-figure bill many buyers never saw coming. 3. Legal fees, inspections, and other professional costs Buying a home comes with a stack of smaller professional bills that add up quickly: legal fees and disbursements to close the deal, a home inspection, an appraisal for your lender, and title insurance with a title search. Each one seems minor next to the purchase price, which is exactly why buyers forget to budget for them. Together, they can quietly add several thousand dollars in the weeks before closing, and unlike your mortgage insurance premium, none of them can be rolled into the loan. They’re all cash out of pocket. 4. Adjustments, moving, and the first-month pile-on On closing, you reimburse the seller for anything they’ve prepaid past the closing date, most commonly property taxes and sometimes utilities. Then the move itself hits: movers, utility hookups, locks, blinds, appliances, and the inevitable first repair. These costs land in the exact month your bank account is at its lowest. It’s no wonder more young Canadians are questioning whether homeownership still makes sense. That shift is bigger than most people realize, and I explored it in a recent Blueprint Financial video, The Canadian Dream Isn’t in Canada Anymore. 5. Build a separate closing fund before you house hunt The best defence against all of this is to treat closing costs as their own savings goal, not an afterthought. Set aside an extra 2 to 3 per cent of your target purchase price, and park that money somewhere safe and liquid, completely separate from your down payment fund. One trap to avoid: if you’re pulling money from an FHSA or your RRSP through the Home Buyers’ Plan, don’t treat that full amount as your down payment. Set aside your closing costs first, and whatever remains is what you actually have for a down payment. Final thoughts Closing costs can be a surprise, but they’re a manageable one. Know your province’s land transfer tax, understand the cash portion of your mortgage insurance, and build a dedicated closing fund before you start touring open houses. And remember, the spending doesn’t stop once you get the keys, something I covered in my earlier column on the hidden costs of home ownership. Walk in with eyes open, and closing day feels like a milestone instead of an ambush.
