Home buyers are on cloud nine after buying their dream homes until they see the closing disclosure. It lists many additional expenses you have to bear as “closing costs.”
California home buyers spend $7,953 on average in closing. These are out-of-pocket expenses you need to finance, buy, and own your home. Buyer closing costs largely depend on the location and can add up to several thousand dollars in some areas of the Golden State.
This hefty amount may startle first-time home buyers busy saving up for the down payment. As a rule of thumb, set aside 2% to 5% of the purchase price to cover the closing costs in California.
Here’s a comprehensive guide to California closing costs for buyers. Read further to get an accurate estimate of your closing costs and discover ways to avoid them.
🚀 Key Takeaways
- How Much are a Buyer’s Closing Costs in California: Typical closing costs for a buyer in California range between 2% to 5% of the purchase price.
- What Do Buyer Closing Costs Include: Buyer closing costs consist of one-time expenses of loan origination, notary, recording, and appraisal. It also includes recurring expenses like property taxes and homeowner’s insurance.
- Account for Loan-Specific Closing Costs: These may include PMI for conventional loans, FHA mortgage insurance premiums, VA funding fees, and USDA guarantee fees.
- How to Reduce Closing Expenses: You can ask for seller concessions, shop for lenders, or apply for closing cost assistance programs.
What are Closing Costs in California?
California closing costs are the fees you pay to acquire a mortgage and buy a home. There are three categories of buyer closing costs:
- Property Related Costs: These include the costs to inspect, appraise, and survey the property. Additionally, taxes such as property tax and transfer tax also fall in this category.
- Paperwork Related Costs: These consist of real estate attorney fees, recording fees, notary fees, etc.
- Mortgage Application Costs: This includes the money you spend to finance your new home. Expenses like loan origination fees, application fees, processing fees, etc., come under this category.
For home buyers in California, closing costs are an out-of-pocket expenditure. You cover them using a cashier’s check or with a wire transfer.
Who Pays Closing Costs in California, Buyer or Seller?
In most California real estate transactions, buyers and sellers share the closing costs. But buyers cover most of them. You can negotiate with the seller for concessions.
Home sellers can offer concessions only up to a certain percentage of the sale value. The seller concessions limit varies per the loan type and is as follows:
|Mortgage Type||Down Payment||Seller Concession Limit|
|Conventional||Less than 10%||3%|
|Conventional||10% to 25%||6%|
|Conventional||More than 25%||9%|
|Conventional Mortgage for Investment Property||Any amount||2%|
» Who Pays Closing Costs in California: Learn Who Covers the Major Chunk of Closing Costs.
How Much are Closing Costs in California for Buyers?
The average closing cost for a buyer in California is 1% of the total purchase price, as per ClosingCorp. It includes the cost of financing, property-related costs, and paperwork costs.
Not all California home buyers pay the same costs at closing. It largely depends on the property’s location. For instance, in Los Angeles where the median home value is $980,000, California buyer closing costs can add up to $9,800. In Oakland, the median home value of $840,000 translates to $8,400 at closing.
Buyer closing costs comprise some mandatory expenses irrespective of the mortgage type. These include California appraisal fees, loan origination fees, underwriting fees, etc. Additionally, there are some costs specific to the type of home loan. These are MIPs, funding fees, guarantee fees, etc.
Under the Real Estate Settlement Procedures Act (RESPA), your lender will provide you with the closing disclosure three days before the settlement date. It will list all your closing costs and the exact amount you owe.
How Much are Closing Costs on a Cash Deal in California?
Cash home buyers pay lower closing fees or settlement charges. California closing costs for cash buyers are around 1% of the purchase price.
Cash home sales don’t have a financing contingency. So, you skip mortgage closing costs as a cash buyer. Additionally, most cash buyers purchase homes as is which further helps them save on appraisal and inspection costs.
You can use the closing costs calculator for cash buyers in California to get an estimate of closing your expenses.
What is Included in Closing Costs for Buyers in California?
Here are some of the most common estimated closing costs for a buyer in California:
Loan Application Fee: Up to $500
The application fee is the upfront fee the mortgage lender charges when you submit your loan application. It is non-refundable and varies across lenders.
Some lenders collect the application fee as a deposit, while others charge it separately. Sometimes, loan application fees can be as high as $500.
Loan Origination Fee: 0.5% to 1.5% of the Mortgage Value
The loan origination fee includes the cost of processing, underwriting, and funding your loan. It forms the most significant chunk of the mortgage closing costs in California for buyers. Prepare to pay up to 1.5% of the loan value in the origination fee.
You might see other loan origination charges in the loan estimate if you have prepaid interest points with your loan.
Home Appraisal Fee: $300 to $500
Real Estate Attorney Fee: $150 to $500 Per Hour
Real estate attorneys charge hourly rates or work on a fixed fee basis. California real estate lawyers charge $412 per hour on average.
Courier Fee: $30 to $50
Your lender might charge $30 to $50 to transport the mortgage documents to and from various parties involved.
Credit Report Fee: $10 to $100
The credit reporting fee is the cost of obtaining a credit report. You allow lenders to access your credit report during the credit score verification. They review the credit report via one of the three credit bureaus – Experian, TransUnion, or Equifax.
These bureaus charge a monthly premium to access credit reports which lenders roll into buyer closing costs.
Title Search Fee: $80 to $200
You need to hire a local California title company to determine the property’s legal ownership. The title company examines public records like deeds, tax liens, land records, court judgments, etc. A title search helps discover any liens or claims on the property that the seller may be unaware of.
The title search fee ranges between $80 to $200 in California.
Title Insurance Fee: Varies Across Counties
The title insurance cost in California varies as per the counties and ranges from $0.55 per thousand to $0.75 per thousand. You can negotiate with the seller to split the cost.
Discount Points: 1% of the Mortgage Value
You can lower your mortgage interest rate by purchasing discount points from the lender. Unlike other buyer closing costs, discount points are optional.
One discount point is equal to 1% of the loan value. For instance, one discount would cost you $1,000 for a mortgage of $100,000.
Escrow Funds: At Least 2 Months of Mortgage Payments
Lenders may establish a mortgage escrow account to pay the property tax and insurance premiums. Escrow funds are a part of your monthly mortgage payments. Your lender manages the escrow funds and makes the payment on your behalf.
Most lenders require home buyers to keep at least two months’ worth of mortgage payments in the escrow funds.
Prepaid Interest: Depends on the Mortgage Rate
It covers the mortgage interest from the date of closing to the first monthly mortgage payment. To calculate the prepaid interest rate, divide the annual interest rate by 365. Then multiply it by the number of days between closing and the first mortgage payment.
Property Tax: Varies Across Counties
It is a part of the monthly mortgage payments. The local authorities charge property tax to fund community projects. The property tax rate is calculated based on home value and local taxation laws.
The average property tax rate in the Golden State is 0.71%.
Transfer Tax: 0.11% of the Purchase Price
Transfer tax is levied on the transfer of homeownership from the seller to you. The municipality, county, or state is responsible for charging this tax, and its amount is based on the property’s market value.
The real estate transfer tax in California is 0.11% of the purchase value.
Home Inspection Fee: $300 to $500
Your lender might require the home inspection report to ensure the property is free of structural problems. You might also have to conduct various specialized home inspections, such as pest inspection, lead-based paint inspection, radon inspection, etc.
A general home inspection in California costs $325 to $450. Specialty home inspections can cost an additional $25 to $500.
Homeowners Insurance: $2,000 Per Year
Lenders generally require you to purchase homeowner insurance to protect their investment. Homeowner’s insurance premiums are usually a part of the escrow funds which are rolled into the monthly mortgage payments.
The premiums depend on the insurance provider, home value, and the coverage you choose.
Recording Fee: $120 to $150
A recording fee is paid to the local city or county to update the ownership records. Recording fee varies across counties in California. Contact your local county office to know the exact cost.
Additional Buyer Closing Costs Per the Loan Type
You might have to bear additional buyer closing costs in California if you opt for a specific type of loan. These may include the following:
PMI for Conventional Mortgages: 0.5% to 1% of the Loan Amount
Private Mortgage Insurance (PMI) protects the lender if the buyer fails to make mortgage payments. You need a PMI for a conventional loan if you make a downpayment lower than 20% of the purchase value.
The PMI rates vary depending on your monthly mortgage payment and down payment. However, it is typically around 0.5% – 1% of your loan amount.
FHA Mortgage Insurance Premiums: 1.75% of the Loan Amount
FHA loans require borrowers to buy Mortgage Insurance Premiums (MIP) if their downpayment is less than 20%. Additionally, you pay FHA MIPs that vary based on the Loan-To-Value (LTV) ratio and mortgage duration.
VA Funding Fee: 1.25% to 2.15% of the Loan Amount
VA funding fee is a one-time payment that borrowers pay to the Department of Veterans Affairs. It makes VA loans affordable for veterans. VA funding fee rates are between 1.25% to 2.15% of the mortgage value, depending on the down payments. The rates can vary if it’s your second VA loan.
USDA Guarantee Fee: 1% of the Loan Amount
The mortgage lenders have to pay a non-refundable upfront guarantee fee that buyers cover indirectly in the closing costs. The USDA guarantee fee is 1% of the loan amount. You must also pay an annual fee of 0.35% of your mortgage.
How to Calculate Closing Costs for a Buyer in California?
Home buyers in the Golden State can expect to pay 2% to 5% in closing costs. However, to estimate your closing costs more accurately, use the California buyer closing costs calculator below:
How to Avoid Paying Closing Costs When Buying a House?
There is no way to waive home-buying closing costs completely. However, here are some tips that can bring down your California buyer closing cost estimates:
- Ask for Seller Concessions: You can ask the seller to contribute to your closing costs through concessions or credits. However, the percentage of seller concession varies per the mortgage type.
- Shop for Mortgage Lenders: Research mortgage lenders in California and compare their rates. Choose a lender that has a lower mortgage cost and offers competitive rates for the loan of your choice.
- Research Closing Costs Assitance Programs: There are grants to assist buyers with government loan closing costs. Typically, local or state housing authorities or nonprofits offer these grants. Research the eligibility criteria for each type of grant before you apply.
The closing cost percentage for buyers in California accounts for 2% to 5% of the total purchase price. The exact closing costs depend on the type of loan, home value, sale contingencies, and local laws.
You can ask for seller credits or concessions, negotiate with your lender, or opt for a no closing cost mortgage. You can also apply for state-sponsored closing costs assistance programs.
Ensure you account for the closing amount while you are busy saving up for the downpayment. Review the closing disclosure to know the exact closing estimates. Apart from funds, review and bring all the documents needed at closing.
Frequently Asked Questions
1. How much are closing costs in California if you pay cash?
Closing costs in California for cash buyers are around 1% of the purchase price. Cash home sales don't have a financing contingency. So, cash buyers skip mortgage-related closing costs. Additionally, most cash buyers purchase homes as is which further helps them save appraisal and inspection costs. You can use the closing costs calculator for cash buyers in California available online to get an estimate of closing your expenses.
2. Are closing costs in California high?
Average closing costs in California are 1% of the buying price. This is lower than the national average of 1.81%.
3. When are closing costs paid in California?
Closing costs are paid on the day of settlement when you transfer the funds and sign the paperwork for buying your house in California.
4. How can I lower my closing costs in California?
You can do the following to lower your closing costs in California:
1. Negotiate seller concessions
2. Opt for a no-closing cost mortgage
3. Apply for closing costs assistance programs
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