Closing costs. The bane of every home buyer's existence.But fear not, for we’re here to demystify this often confusing and intimidating aspect of purchasing real estate.

Real Estate closing costs explained

First, let's define what closing costs are. Simply put, they are the fees and expenses associated with purchasing a property.

This can include things like mortgage origination fees, title insurance, land transfer taxes, legal fees, and property taxes, just to name a few.

These costs are typically paid at the closing of the sale, hence the name.

Now, why are closing costs so darn confusing?

Well, for starters, they can vary greatly depending on several factors, including the location of the property, the type of mortgage being used, and the individual fees and expenses associated with the transaction.

This means that it's difficult to provide a one-size-fits-all answer when it comes to exactly how much you can expect to pay in closing costs, however, it’s not impossible to estimate closing costs. As a general rule of thumb, you can expect closing costs to be somewhere in the range of 2% to 5% of the purchase price of the property. So, if you're buying a home for $200,000, you can expect to pay between $4,000 and $10,000 in closing costs.

Of course, this is just an estimate, and your actual costs may be higher or lower depending on the factors we mentioned earlier. Let’s closer look at some of the individual fees and expenses that make up closing costs. One of the most significant costs when buying a property in Ontario or British Columbia is going to be the Land Transfer Tax (LTT), or Property Transfer Tax (PTT) as it’s best known in BC.

This is the fee charged by the province (and sometimes municipality) every time a property changes hands and is paid for by the home buyer.  Land Transfer Tax can vary depending on the location of your home, for example, buying a home in the city of Toronto will likely incur both the provincial LTT and a City of Toronto municipal LTT.  Land transfer taxes are calculated using a formula and are driven by your home’s purchase price. Another significant closing cost is the title insurance fee. This is a policy that protects the lender (and the buyer) against any potential claims or issues with the property's title.

The cost of this insurance can vary, but it's typically based on the purchase price of the property. So, using the example from earlier, if you're buying a $200,000 home, you can expect to pay a few hundred dollars for title insurance.  The good news is that title insurance is a one-time premium and is only paid once at closing. As a homebuyer, you’ll have to pay legal fees for a real estate lawyer to close your transaction.  

Legal fees can vary depending on the location, type of property, and even the price of the property. In addition to the Land Transfer Tax and title insurance, there are a number of other costs that may be included in your closing costs. These can include things like property tax adjustments, and various government registration and search fees (if applicable). These costs can vary greatly depending on the location and type of property you're purchasing, so it's important to do your research and understand what you can expect to pay.

The bottom line

In conclusion, closing costs can be confusing and intimidating, but they don't have to be. By understanding what they are and what they include, you can be better prepared to handle these costs and negotiate to make sure you're getting the best deal possible.