What Are the Closing Costs When You Buy a Home?

Buying a home is exciting, but once you’ve agreed on a price and secured financing, there’s another important aspect of the process to understand: closing costs. These are the fees and charges that you pay when the sale of a property is finalized — the moment ownership transfers from the seller to you. While many buyers focus first on the down payment and mortgage, closing costs can add up to a significant amount and are essential to budget for.

In this guide, we’ll walk through what closing costs are, why they exist, what typical items make up closing costs in Canada, and how you can prepare so nothing catches you off guard.

What Are Closing Costs?

Closing costs are the various fees and expenses charged by third parties involved in completing a real estate transaction. These costs are separate from your down payment and mortgage principal. They reflect the administrative, legal, and financial work needed to transfer property ownership legally and smoothly. Closing costs are typically paid on or before the closing date — the day the home officially becomes yours.

Why Do Closing Costs Exist?

Several professionals and organizations play a role in a home purchase:

• Lenders arrange and process your mortgage financing.

• Lawyers or notaries ensure the property title transfers correctly and handle legal documentation.

• Appraisers and inspectors assess the property’s value and condition.• Tax authorities process transfer fees.

• Title insurers protect against title defects.

• Other parties help record the transfer and calculate adjustments.

All of this work requires fees, and these combined charges make up your closing costs.

Major Categories of Closing Costs

Here are the most common components you can expect when buying a home in Canada:

1. Legal or Notary Fees

A lawyer or notary is necessary to handle the legal work involved in transferring property ownership. Their tasks include title searches, preparing documents, registering the deed, and ensuring all legal requirements are met. Expect legal fees and related disbursements for services like registry charges and document preparation.

2. Land Transfer Tax

When you buy property, provincial and sometimes municipal governments charge a land transfer tax (also called a property transfer tax). This tax is based on the purchase price of the home. In some areas there are exemptions or rebates for first-time home buyers, but in many cases this is one of the largest closing costs.

3. Title Insurance

Title insurance protects you and your lender in case a title problem emerges later — for example, undisclosed liens, fraud, or title defects not found during the title search. It’s a one-time cost, but an important safeguard against potentially costly issues.

4. Appraisal & Inspection Fees

Your lender may require an appraisal to confirm the home’s value before approving your mortgage. This is typically paid by the buyer. Similarly, a home inspection — though often optional — is strongly recommended so you fully understand the condition of the property before closing. Both fees are part of closing costs.

5. Mortgage Fees & Insurance

Depending on your mortgage type and down payment size, you may see:

• Mortgage application or processing fees

• Mortgage default insurance (if your down payment is less than 20%)

• Interest adjustment fees

Mortgage default insurance — often required for lower down payments — protects the lender if you default. This insurance premium may be paid upfront or added to your mortgage.

6. Property Tax Adjustments

At closing, the seller may have prepaid property taxes for the year. If so, you may need to reimburse the seller for the portion of taxes attributable to your ownership period. This is handled through adjustments on closing day.

7. Utility & Service Charges

When you take ownership, you may need to pay connection or transfer fees for utilities like electricity, gas, water, and cable or internet. These costs vary depending on providers and region.

8. Survey or Measurement Fees

If an up-to-date survey of the property isn’t available, your lawyer or lender may request one. This verifies property boundaries, easements, or encroachments. Surveys can sometimes be expensive but prevent disputes later.

9. Miscellaneous Administrative Fees

There are often smaller administrative expenses, such as:

• Document preparation fees

• Courier or registry office charges

• Postage and handling fees

• Home warranty registration (if included with a new build)

Together, these might seem minor individually, but they add to the overall cost.

How Much Should You Expect to Pay?

While closing costs vary depending on property price and location, buyers should generally budget between 1.5% to 4% of the purchase price for closing costs. In higher-priced markets, that percentage could be higher.

For example, on a $600,000 home, closing costs of 2% would be about $12,000 — in addition to your down payment.

It’s important to get a detailed estimate from your lender and lawyer early in the process so you can plan appropriately.

When Do You Pay Closing Costs?

Most closing costs are paid on closing day or shortly before. Some fees, like appraisal or inspection fees, are paid upfront. Others, like legal fees and land transfer taxes, are paid at the closing table. Your lawyer will typically provide a closing statement that outlines all charges, adjustments, and the net amount you need to bring to closing.

Tips to Prepare for Closing Costs

Plan Ahead

Start budgeting early. As soon as your offer is accepted, ask your lender and lawyer for an itemized estimate of closing costs so you can avoid surprises.

Consider Rebates

Many provinces offer land transfer tax rebates for first-time buyers. Check eligibility early so you can apply in time.

Save More Than You Think You Need

Closing costs can be higher than expected. Set aside a cushion beyond your down payment to cover these fees without stress.

Ask Questions

If anything on your closing statement is unclear, ask your lawyer to explain it. Transparency here helps you understand what you are paying for and why.

Final Thoughts by Jag Sidhu

Closing costs are an essential part of buying a home — and knowing what they include makes a big difference in your planning and peace of mind. They represent the legal, administrative, and financial work needed to transfer ownership safely and properly.

At Jag Sidhu Real Estate Group, I guide buyers through every step of the home purchase process — including understanding hidden and closing costs — so you can buy with confidence and clarity. Whether you’re a first-time buyer or experienced investor, we’re here to help you navigate all the financial aspects of buying a home.

Frequently Asked Questions

1. Are closing costs included in the home purchase price?

No, closing costs are separate from the purchase price of the home. While the purchase price determines how much you borrow and your down payment, closing costs cover legal fees, taxes, insurance, and administrative expenses. Buyers must pay these costs in addition to the down payment.

2. Can closing costs be added to my mortgage?

Some closing costs may be rolled into the mortgage depending on the lender and the type of loan, but many costs must be paid upfront. Items like land transfer tax, legal fees, and adjustments are usually paid on closing day and cannot be fully financed through the mortgage.

3. Do first-time homebuyers pay less in closing costs?

First-time homebuyers may qualify for rebates or exemptions, particularly on land transfer taxes, depending on the province or city. However, other closing costs such as legal fees, inspections, and title insurance still apply.

4. When should buyers start preparing for closing costs?

Buyers should start planning for closing costs as soon as they begin house hunting. Ideally, funds should be set aside early in the buying process so there is no financial pressure when the closing date arrives.