Here’s a closer look at what happens during the closing process so you can feel confident when it’s time to sign.
After the mortgage approval process and the offer, the only thing standing between you and your new home is the closing. During a real estate closing, the property title transfers from the seller to the buyer. You’ll sign several documents prepared by the escrow company and closing agent and pay your share of the closing costs.
And when it’s all done, you’ll officially be a homeowner!
Here’s a closer look at the process and how you can prepare for a smooth transition.
The Closing Process
Closing day is considered the day you sign the paperwork and take possession of the home, but there’s a lot of groundwork you need to perform first. Doing your homework ahead of time can increase your chances of a seamless, no-guesswork closing process and avoid costly delays.
Here’s a step-by-step breakdown of your responsibilities as a home buyer:
Step 1 – Offer and contract accepted by the seller
Step 2 – Deposit held in escrow account
Step 3 – Buyer completes due diligence (e.g., home inspection, review seller disclosures)
Step 4 – Lender conducts appraisal
Step 5 – Mortgage is approved by lender
Step 6 – Buyer obtains homeowner’s insurance & title insurance
Step 7 – Buyer completes final walkthrough of home
Step 8 – Lawyers facilitate land transfer documentation
Step 9 – Lender receives documentation and sends borrowed funds
Step 10 – Escrow funds are released
Step 11 – You receive the keys
Your real estate agent can provide more insight on how to navigate each step.
Typical Closing Costs
Closing costs are important to budget ahead of time as they must be paid in cash and can add up to about 4% of the purchase price. The exact dollar amount will vary by property and area, but here’s a closer look at what the costs are and how they’re calculated:
Land Transfer Tax (LTT)
This tax is calculated based on a percentage of the home purchase price and varies by province. In addition, certain cities may have municipal LLT. Here are a few examples:
- Toronto ON (2.1% ~ $16k on an average home)
- Montreal QC (0.7% ~ $4k on an average home)
- Winnipeg MB (1.3% ~ $4k on an average home)
- Kitchener-Waterloo ON (0.4% ~ $2k on an average home)
- Calgary AB (0.1% ~ $300 on an average home)
Professional Home Inspection
A home inspector will assemble a report on the condition of the home for a fee of around $500, depending on the complexities of the inspection.
Legal Fees and Disbursement
Legal fees include the preparation and recording of official documents and usually cost a minimum of $500, plus GST and HST.
In case of a property dispute, many lenders require title insurance to protect against losses. This is purchased directly through your lawyer or notary and costs between $100 and $300.
Deposit and Down Payment
When making an offer to purchase, you’ll need to pay a deposit to show that you’re a serious buyer. There is no minimum required, but this amount is often equal to 5% of the purchase price. This deposit will count towards your down payment.
Many lenders will generally require a down payment of 20%, although some may accept less depending on the bank and mortgage product. The down payment is made at the time of closing in the form of a bank check.
Mortgage Default Insurance (CMHC Insurance)
Mortgage insurance is usually required if your down payment is less than 20%. This protects the lender in the event of default, and regular premiums are generally rolled into your mortgage payments.
In some areas, such as Manitoba and Ontario, provincial sales tax must be paid on CMHC insurance in cash at the time of closing.
Estoppel Certificate Fee (Except Quebec)
A certificate fee may be payable if you are buying a condominium or strata unit and could cost up to $100. Your Realtor will let you know whether this is needed.
If the seller has prepaid any utilities, your final purchase price will be adjusted for these. You’ll also need to consider moving costs in your grand total. A local move will typically cost between $300 for a small condo up to $1,500 for a three-bedroom home.
Ideally, you’ll consider closing costs in the home buying process at large. These extra fees can significantly impact your budget and may affect how much you choose to spend on a new home.
For more insights into the home buying process in Canada, head back to the Properly blog.