As a prospective homebuyer, you’ve probably read vague mentions of closing costs here and there. Closing costs are one of the so-called hidden costs of buying a home. It’s not a set number, but a compilation of various administrative and legal fees that are due on the closing date, the agreed-upon date by the buyers and sellers when the lawyers exchange the money and documents required by the Agreement of Purchase and Sale, the lender advances funds for the buyer’s mortgage, and all of the relevant documents are registered to transfer the property from the seller to the buyer. Depending on where you live, closing costs will probably be between 1.5-4% of the purchase price of the property.
 
“There are costs that just don’t exist anywhere else,” says Phil Soper, president and CEO of Royal LePage Real Estate Services in Toronto. There are often costs involved in buying a home that many first time home buyers have never heard of, particularly if they didn’t do their homework or seek good advice during the transaction.
 
Mortgage calculators can provide help in anticipating how much you can borrow and at what rate, but that isn’t the only important figure. While coming up with a down payment is a critical step, many first-time buyers are so obsessed with accumulating that amount that details such as closing costs and land transfer taxes fly under the radar.  
 
To help clarify what the costs associated with buying a house are, here’s a list of some of the expenses you can expect to incur when you’re thinking about buying your first home.
 
Deposit and down payment
 
The deposit is usually a part of the offer to purchase and is presented to the seller when you want to purchase the property. It shows the seller that you’re a serious buyer and is held in trust until the closing date, at which point it becomes part of the down payment.
 
By now you probably know all about the down payment. This is the money that you need upfront to purchase a home. If you’re going to get a mortgage, you must put down 5% of the purchase price of the property in cash. If your down payment is less than 20%, then you will need to get mortgage default insurance. The premium is generally rolled into the mortgage but can be paid upfront as part of the closing costs. Premiums in Manitoba, Ontario and Quebec, however, are subject to provincial sales tax, and this tax cannot be added to the loan amount; it’s due at closing.
 
Interest adjustments are paid upon closing, and they depend on the time of month of your closing date. If your mortgage payments are set to be paid at the start of the month and your closing date is in the middle of the month, then an amount is collected at closing to cover the period of time between your closing date and your first mortgage payment. This period is known as the Interest Adjustment Date, or IAD. The same idea applies to condominium maintenance fees; if the seller has prepaid their fees, then you will have to reimburse them a prorated amount from the date you take possession to the last day that their payment had covered.

Your down payment can come from personal savings and assets, RRSPs (Registered Retirement Savings Plan), donations or gifts from families, a tax free savings account or, in some cases, lender cash-back programs. 
 
Appraisal fee
 
The appraisal fee is often covered by the lender as part of their due diligence before granting you a mortgage. The purpose of the appraisal is no different from any other appraisal: to assess the value of the property and to make sure that the lender isn’t lending you more than the property is worth. Typically, the lender won’t lend a buyer more than the property’s appraised value because if the buyer defaults and the lender must foreclose the house, they need to be able to sell it for the amount that was lent out plus the costs of the foreclosure.
 
The appraisal fee is often covered by the lender, but if the fee is not covered, then the appraisal will cost you anywhere from $250 to $500.
 
Land transfer tax
 
Land transfer taxes and land transfer fees are a big piece of the closing puzzle pie. The land transfer tax is a provincial tax on the sale or purchase of property ranging from 0-2%, and if you’re in Toronto, you pay a municipal tax as well. Buyers in Alberta and Saskatchewan don’t pay land transfer taxes, but smaller land transfer fees instead. First-time buyers in Ontario, British Columbia, Prince Edward Island, and Toronto may be entitled to receive a rebate. Use our land transfer tax calculator to find the exact amount that you’ll need to have.
 
Searches and title insurance
 
Title refers to the legal ownership of the property, and a deed is the physical legal document that transfers the title from one person(s) to another. Both the title and deed of the home have to be registered with a land registrar. Registration is generally less than $100.
 
There are several administrative searches that may be done as part of the home buying process. These include: title searches, which ensure that the seller has the legal right to sell the property and that there aren’t any liens, mortgages, or property line issues that could invalidate the purchase agreement; an execution search, which provides details of any court judgements against the property owner; a tax search, which ensures there are no outstanding taxes on your property; an unregistered easement search, which determines whether or not your new home is subject to any easements that may not be registered against the title to your new home; a property search, which determines whether or not the property is in compliance with the property standards regulations and whether or not there are any outstanding work orders that affect the property; and utility searches, which determine the status of the accounts and serve to notify the utilities of the change of ownership. Multi-unit properties may also undergo various fire and compliance searches. The fees for these searches are usually less than $100 each.
 
Title insurance, although not always required, protects property owners and their lenders against losses related to the property’s title or ownership up to the policy’s stated maximum amount. It covers unknown title defects, existing liens, encroachment issues, real estate title fraud, survey errors, or identity fraud, where someone has assumed a property owner’s identity to secure finance against that property. Title insurance premiums range from $150-$500.
 
Estoppel Certificate
 
If you’re buying a condominium, most jurisdictions require an Estoppel Certificate. An Estoppel Certificate outlines a condominium corporation's financial and legal state of affairs. It can include bylaws, rules and regulations, insurance information, the balance in the reserve fund, the legal description of the unit, information about any legal filings, judgments against the condominium corporation, special assessments and insurance claims. The certificate is $100-$200.
 
Legal fees
 
The ringmaster on closing day is your lawyer. Your real estate agent will often be able to refer you to a reputable lawyer, but if they can’t, take care in finding a good one. The lawyer is the person who combs through all of the paperwork and makes sure that everything is legitimate and binding. They confirm that every i is dotted, every t is crossed, and all of the items that were agreed to by the buyer, seller/builder, and lender are written and worded correctly. Your lawyer should also be able to walk you through each document that you sign so that you understand what you’re agreeing to. Lawyer fees range from $500 to $2,500, and you also reimburse them for their out-of-pocket costs that they incurred while handling the various searches and registrations, including title insurance, property and execution searches, and the registration of the mortgage and deed. These disbursements are repaid to the lawyer on the closing date, as well as incidentals such as couriers, certified cheques, and photocopying, the land transfer tax, the down payment, and any interest adjustments. Depending on the time of year that the home is purchased, you might have to reimburse the seller for any pre-paid fees as well, which may include property taxes, condo fees or utilities. When getting an estimate for a real estate lawyer, make sure to get as detailed of a breakdown of costs as possible. For all of the grumbling about lawyers, their role is one of the most important in the home buying process and if they make a mistake, it could end up costing you thousands of dollars to rectify, in addition to more legal fees.
 
Expect to surrender a couple of hours to the closing process, and to feel a little overwhelmed while signing your name so many times – and forking over so much cash. But in the end, you’ll have the keys to your new home to show for it.