Closing costs come in at the end of the real estate transaction process. When it comes to who pays what, there might be some variations. So, who typically pays closing costs in California?
Who Typically Pays Closing Costs in California?
Both buyers and sellers pay closing costs in California. Buyers typically pay all or at least a significant portion of mortgage-related fees including escrow fees charged by the escrow company as well as the origination fee. Sellers, on the other hand, pay the real estate transfer taxes that are incurred as a result of the sale.
What Comprises Closing Costs for Buyers in California?
Homebuyers in California typically pay an average of 2% to 3% of the home’s price as of closing costs. Based on the frequency of payment, these expenses are divided into:
- Non-recurring or one-time payments
- Recurring or ongoing payments
Therefore, a home purchase in Los Angeles for $700,000 would have total closing costs of between $14,000 to $21,000. These fees can be negotiated with the seller, however, a CA Flat Fee realtor would be in the best position to help you determine what your closing costs would be.
Non-recurring or One-time Payments
This refers to fees that are paid only once through the house purchase process:
- Escrow fees: Fees like cash to close are to be paid to the escrow company for their services
- Down payment: determined by the mortgage program and is usually a percentage of the house’s value
- Escrow: holds valuables such as the property deed, and earnest money
- Notary: cost incurred during the process of verifying signatures
- Title Insurance: paid by the homebuyer and protects the lender if there are challenges with the title. A search or the title’s history usually has to be done to certify that there are no encumbrances like liens
- Recording fees: cost required to change the record of ownership and is paid to county government
- Mortgage origination: fee charged by the lender for originating the loan
- Underwriting: administrative charge incurred during the process of evaluating the property and the borrower
- Processing fees: charge for paperwork process and managing the loan deal
- Discount points: fee required to set the present market interest rate in stone for the mortgage
- Flood certification: charge for assessing the possibility of risks on the property
- Mortgage insurance: charge by the lender when down payment made is less than 20% of home’s purchase price
Recurring or Ongoing Payments
Recurring fees refer to payments that have to be constantly made through the entire duration of homeownership. Usually, you would have to make the first few installments. This is to ensure that you get adjusted to the payment schedule.
“Reserves” or “impounds” are the terms that are commonly used to refer to these fees that have to be paid upfront. At closing, buyers are required to part with six months of property tax as well as three months of home insurance. This is paid to the lender, who in turn makes the payment on behalf of the homebuyer.
This way, homebuyers can settle in before having to start making the payments on their own. Here are some other payments:
- Hazard insurance: fee is based on homeowner insurance premium
- Prepaid mortgage interest: the interest charge for the current month’s mortgage payment
- HOA dues: usually paid to cover at least two months in advance
- Property taxes: determined by property value and six month’s worth is usually held in a reserve account
What Comprises Closing Costs for Sellers in California?
Home sellers in California typically pay closing costs of between 5% to 9%. However, working with a flat fee realtor like CA Flat Fee drives this down significantly since you wouldn’t have to pay a percentage as seller’s broker commission. Rather, a flat fee of $5,000 is the only charge. In California, here are the major costs that are billed to the seller:
- Broker’s commission: this is charged by the listing broker that markets the property and is usually shared with the seller’s broker. Working with CA Flat Fee reduces this fee significantly.
- Title insurance: the seller makes the payment for the buyer’s policy. Title insurance indicates that the seller would be responsible for unexpected situations like previous liens.
- Attorney: If the seller is represented by an attorney, he has to pay the fees associated
- Documentary transfer tax: a tax charged by the government when real property is transferred. It is otherwise known as a real estate transfer tax.
- Seller Concessions: any fees that the seller agrees to cater to after negotiations with the buyer.
What Should You Expect On Closing Day?
Closing in California can either be done jointly or separately by the home buyer and seller. Remote closing has also been integrated to avoid having to experience a face-to-face interaction. A document detailing who is paying which closing costs is usually sent to mortgage borrowers some days before closing. In addition, a rough estimate might be given around the point of the loan application.
For buyers who are not using a loan, the escrow company involved in the process would have details of the closing costs straightened out before the final documents are signed. This way, both parties involved understand the costs associated with the transaction.
Your CA Flat Fee realtor knows which of the costs should be paid by either party, which can be negotiated, and split. Since closing costs payments differ based on state and even city, an experienced realtor is in the best position to handle this using local insight and previous sales experience.
Closing costs in California are paid by both the buyer and the seller. Since all the costs are outlined here, you can be informed ahead of what costs you might be incurring. However, there is still some room for negotiating who pays what, and this is precisely where a realtor excels.