When it comes to buying a home, there are a lot of things to take…
If you’ve ever thought about buying a home in California, it’s a question you’ve probably asked your homeowning friends, family members, any real estate professionals you know, and the internet: How much are closing costs in California? Maybe you’ve even watched a few YouTube videos on the subject (like this one made by our resident experts, Aaron and Jennifer). It’s an understandable thing to be concerned with, given that it’s the last big step in finalizing the purchase of a home.
If you’re at any stage of the homebuying—or home-hunting—process, you’ve probably looked into what you should expect to pay in closing costs. While these costs will always differ from property to property, we’ve got plenty of info to at least partially answer the question.
Each Lender Charges Closing Costs Differently
Before we dive deep into the details of closing costs in California, you need to know that not every lender is going to be the same. They charge different rates for different fees, and certain potential closing costs are optional or area-dependent. So it’s important to be aware going into the process that every mortgage lender’s closing costs will be different. So anecdotal experience—or even your own prior experience—may not help you determine your closing costs with any degree of certainty.
The Components of Closing Costs
While “closing costs” is used as a blanket term for the money it takes to finalize the purchase of a property, they’re not a single fee paid to one person or institution. There are a number of factors and fees that make up closing costs here in California. Some of these are optional, location-specific, or not legally required in California.
But you should know about all of them, just in case your lender, municipality, or you end up wanting to include such services in your home purchase.
Earnest Money Deposit (EMD)
The earnest money deposit, as its name suggests, essentially serves as financial proof that you’re both earnestly interested in purchasing a property and have the money to do so. It’s paid to the escrow officer, and yours will eventually go into the down payment if you do end up buying the property in question.
Before you can complete the purchase of a home, you’ll need to hire a professional to conduct a thorough inspection. They’ll make sure everything is in working order and that there are no major structural defects, plumbing problems, pest infestations, or any other issues that will affect your home purchase. This is all to ensure that your new home is in solid condition and that no unexpected problems pop up after you move in.
Similar to an inspection, the appraisal involves a professional going over the property with a fine-toothed comb. The difference here is that this inspection is done on behalf of the lender with the purpose of assessing how much the place is worth and ensuring that the purchase price reflects that.
Loan Origination Fees
Sometimes called mortgage initiation fees, loan origination fees are relatively small sums of money paid to the lender. They’re a sort of processing fee for the work of creating your home loan in the first place.
Credit Report Fee
Chances are you’ve had a credit check run on you at least once or twice in your life before you started the homebuying process. But there’s a small fee to run those checks, typically $25. You’ll almost certainly have to repay the lender or underwriter who runs the credit score check on you.
This fee is a payment for managing the escrow for the home sale, whether that’s done by an escrow company, the entity or company that holds the title, or a real estate attorney. It’s their pay for helping with that component of a property transaction.
Title Search and Insurance
A title search is the process of poring through all the public records and legal history of a property to make sure there are no outstanding issues—liens, paperwork errors, border discrepancies, and so on—associated with it. You’ll have to pay for this service, and once you do, you should also pay for title insurance so you’re financially protected if any title-related issues do arise. Title insurance is paid with a one-time premium at closing, so no need to sweat recurring payments.
California Real Estate Transfer Taxes
Depending on where in the state your home is, you’ll have to pay a variety of transfer taxes. Regardless of where you buy a home in California, you have to pay a state tax on the transfer of property. Individual counties and cities may have transfer taxes as well, so the total you have to pay can vary based on location.
These are paid directly to the real estate attorney who oversees the buying and closing process of the property. It’s another payment in exchange for the work they put into ensuring that the sale and purchase of a home goes smoothly.
Homeowners insurance is always a requirement for obtaining a mortgage. Depending on your lender, you may have to pay as much as a year’s worth of premiums upfront or during closing. So this can be a substantial lump sum added into your closing cost calculations.
In addition to standard homeowners insurance, you may want—or need, depending on your location and risk—to purchase additional types of insurance. These will cover things not typically addressed in the standard coverage, like fire and flooding, both of which are regular issues in various parts of California.
Private Mortgage Insurance (PMI)
People who make down payments of less than 20% of a property’s value have to pay for private mortgage insurance or PMI. You can include the premiums on it in your usual monthly mortgage payments or, if you prefer, pay it all off at closing to get it out of the way.
How to Estimate Closing Costs
It’s extremely common for a homebuyer to want to calculate closing costs as early in the homebuying process as possible. After all, it’s nice to have some idea of the final amount you’ll have to pay to make that new home completely, fully yours.
Generally speaking, closing costs in California will be somewhere between 2% and 5% of your home’s purchase price. For a more specific idea in terms of dollars, a number of reputable websites like Nerdwallet offer closing cost calculators so you can see just how much cash it will take to close.
Paying Off That Last Hurdle
Paying off your closing costs is the last step to take you from homebuyer to homeowner, so it’s no wonder that so many people want to know what those costs are likely to look like well ahead of time.
At New Way Mortgage, we can help you through the entire mortgage process, from pre-qualification to the best part: the finish line of owning your new home. Give us a call today to get started.