One of the most common questions asked by homebuyers is about closing costs. So, what makes up closing costs, and how much can you expect to pay as a homebuyer? In this post, we break it down:
What Are The Typical Closing Costs for a Homebuyer?
Homebuyers in California can typically expect to pay closing costs of approximately 2% of their home’s purchase price. This depends on price, discount points, transfer taxes, and other factors. The higher the purchase price of your home, the higher your closing costs will be.
There are two types of closing cost expenses: non-recurring (one-time expenses, such as escrow fees, title fees, recording fees, loan underwriting, and appraisal fees) and recurring (pro-rated or ongoing expenses, such as mortgage interest, property taxes, and insurance).
For example, if you bought a home in Los Angeles County for $800,000 your non-recurring and recurring closing costs would come out to approximately $16,000 – this is a safe estimate of what a buyer can expect to pay.
Some Examples of Non-Recurring Closing Costs & Loan Related Fees:
Appraisal Fee – This assesses the value of the home being purchased, and usually costs between $485 to $600.
Escrow Fee – This is paid directly to the title company to set up escrow for your earnest money. It covers paperwork and the exchange of funds and usually costs 1% to 2% of the property price, plus small additional fees.
Title Insurance Fee – This protects the lender’s security interest in the property, and usually costs less than 1% of the home’s purchase price.
Loan Underwriting Fee – The lender may charge this in lieu of an origination fee, or in addition to it.
Recording Fee – This is an expense charged by a government agency, or county, for legally recording your deed, mortgage, and documents related to your home loan- costs can range from $75 to $225.
Notary Fee – A notary is a public official appointed by the state to witness the signing of important documents to help deter fraud. The typical loan signing fee is between $150 – $250.
Transfer Taxes – This is a charge to transfer ownership of property of one individual to another- the current rate is $1.10 per $1000, or $0.55 per $500.
Home Inspection – This is to ensure the structure and shape of the home. While this is optional, it is recommended that most buyers elect to have a home inspection completed. They can range from $300 to $600 depending on the size of your home.
Pest Inspection – The average cost for a pest inspection varies from $75 to $125, although most companies offer free annual inspections as part of a home purchase service.
Some Examples of Recurring Closing Costs:
Prepaid Interest – This is also known as mortgage interest – it varies depending on loan size and includes the interest that accrues on the mortgage between the date of settlement and the first monthly payment due date.
Homeowners Insurance – This provides coverage to repair or rebuild your home after major disasters, theft, or damages. The average cost in California for an annual premium is about $1,100 (based on a home valued at $600,000).
Property Taxes – These are used to generate revenue for local governments to help fund initiatives such as schools, roads, parks, and police protection. California’s tax rates usually fall between 1.1% to 1.6% of the property’s assessed value.
Homeowner Association Fees (HOA Dues) – Not all properties have HOA dues, but if a property of interest has HOA dues, the buyer will be responsible for this cost.
What Closing Costs Do Sellers Pay?
The seller’s largest closing costs are usually the real estate commissions, which are split between the listing agent and the buyer’s agent. This fee ranges from 5% to 8% of the home’s sale price, though 5% is the industry standard.
Sellers also pay fees related to the property title, which is the legal document that secures homeownership. The most common of these fees is the “transfer tax,” which transfers the seller’s legal property rights to the buyer. Real estate transfer taxes vary according to region. The current tax rate is $1.10 per $1000 or $0.55 per $500. So, if your home sells for $300,000, the property transfer tax can be estimated to be $330.
In some cases, sellers cover some of the closing costs that are charged to the buyer. For example, veterans who finance their home purchase with a VA loan can only pay certain closing costs. To finalize the transaction, a seller might cover some of the fees which veterans aren’t allowed to pay, like document fees.
If you have any questions on closing costs or your loan options, please reach out to Bluefire Mortgage at (760) 930-0569.