Planning for closing costs is essential for having a positive homebuying experience. Closing costs are fees that need to be paid upfront (unlike the down payment).
Closing costs vary widely depending on the home, the neighborhood, and especially the state. Are you planning to buy or sell a home in California? Here’s what you need to know.
What are closing costs?
When you close on a house, there are services and fees you need to pay for – such as the home inspection or mortgage origination fees. Many of these fees are non-refundable even if you don’t go through with the home sale (the outcome of a bad inspection, for example, may mean you don’t want to move forward).
Technically, some of these costs (like the home inspection) aren’t true closing costs – because you pay them before closing. For the purpose of understanding what a homebuyer has to pay, though, it’s easier to lump them together.
If you haven’t saved enough money for closing costs, don’t sweat just yet. Depending on your loan type, you can put down as little as 3% down on your home – and use the rest of the money you saved for the down payment on closing costs. You can also apply for local grants and forgivable loans that are intended to help homebuyers pay for closing costs (scroll down to find out more).
Who pays closing costs in California?
Both the buyer and the seller are responsible for closing costs in California – however, they pay for different things. The seller’s biggest expense is the commission fees to each agent, though they also have to pay the transfer tax and title insurance – while the buyer has to cover things like the home inspection, the appraisal fee, mortgage origination fee, and more.
How much are closing costs in California?
According to ClosingCorp data, closing costs in California come to approximately 1% of the home’s sale price for buyers – and about 7% for sellers (that includes commission fees).
- The median sale price in California is currently $785,600, according to Redfin
- This means the average buyer will pay about $7,860 in closing costs
- Sellers will pay an average of $55,000* in closing costs
Keep in mind, this is just the median sale price for the state – so costs can vary widely. In Bakersfield CA, for example, the median price is $395,000, whereas the median price for a home in San Jose, CA is $1,310,000.
*sellers who work with Trelora can save up to 50% on commission fees
So how much should you save to cover closing costs in CA?
As you can imagine, the right amount to save will really depend on the home you buy, and the area you plan to live in. If you have a few neighborhoods in mind and an idea of how much you want to spend per month, an agent can help you figure out how much you should save for closing costs.
As a rough estimate, as a buyer:
- If your home is worth $400,000, you’ll need $4,000
- If your home is worth $600,000, you’ll need $6,000
- If your home is worth $800,000, you’ll need $8,000
- If your home is worth $1,000,000, you’ll need $10,000
As a rough estimate, as a seller:
- If your home is worth $400,000, you’ll pay $28,000
- If your home is worth $600,000, you’ll pay $42,000
- If your home is worth $800,000, you’ll pay $56,000
- If your home is worth $1,000,000, you’ll pay $70,000
Buyer closing costs in California
So what exactly will you be responsible for paying for as a California homebuyer?
- Mortgage origination fee: .5-1% of loan amount
- Application fee: $200-$500
- Escrow fees: varies
- Credit check fee: $25
- Mortgage points: varies – optional
- Appraisal fee: $300-$600
- Home inspection fee: $300-$600
- Optional radon, insect, or lead test: +$100 for each
- Title insurance: $0.75 /$1000 (for homes up to $10m in value)
- Prepaid homeowner’s insurance, 1 year: $130
- Pre-paid property taxes: varies
“As a general rule of thumb, it’s typically best for homebuyers to ask the lender how much they’re going to have to pay out of pocket for closing, because most of the time the lender fees are going to be what varies the most depending on what loan program they use,” advises Dillon Floyd, a California-based Trelora Realtor.
Should you pay for optional inspection fees? Sometimes it’s better to spend $100 on the inspection and realize there’s $20,000 worth of inspection damage. An estimated 1% of Californian homes have more radon beyond the recommended amounts (see the dangers of radon). If the inspection does uncover anything, you can use that as leverage in negotiations.
Seller closing costs in California
- Commission for the buyer’s agent: 2-3%
- Commission for the listing agent: 2-3% (or 1% with Trelora*)
- Title service fees – vaires
- Transfer tax: $1.10 per $1,000
- Recording fees: $75+
- Owner’s title insurance: $.75 per $1,000
- Escrow fees: varies
Unlike traditional brokerages, Trelora charges a fair 1% for listing agents, with 2-3% recommended for the buyer’s agent – saving sellers up to 50% on commission fees.
Escrow fees in California are paid for by both the buyer and the seller. Escrow is used when, for example, the buyer needs to pay the seller the earnest money fee (which is 1% to 3% of the home’s price). If the buyer backs out of the deal for a reason not outlined in the contract, the seller gets to keep the money in escrow. But if the buyer pulls out for a legitimate reason, they get their money back out of escrow. Otherwise it goes toward the purchase of the house.
Keep in mind: the best estimate is one provided by your Realtor, because it will be tailored to your specific costs.
How can I pay for closing costs as a first-time home buyer in California?
It can be tough to stomach paying thousands of dollars towards closing costs – especially when you inevitably have plenty of other costs relating to moving. You might be wondering how you can get closing costs waived.
Local Grants/Forgivable Loans
California has several down payment assistance programs, which you can use to help cover your down payment – giving you more flexibility with closing costs.
CA Local Offerings
Most local municipalities will offer additional programs and assistance – so it’s a good idea to talk with an experienced Realtor about what you could qualify for (keep in mind, it’s free to chat with an agent – it’s the seller who pays their commission, not you!).
As an example, residents of the San Francisco/Oakland area can be eligible for a WISH matching grant that can cover up to $29,000 in closing costs/down payment assistance. WISH is a forgivable loan with no payment due – 20% is forgiven after one year of primary ownership, and after five years of residence, the loan is forgiven.
State Offerings
CalHFA Government Loans (FHA): MyHome offers a deferred-payment junior loan of an amount up to the lesser of 3.5% of the purchase price or appraised value to assist with down payment and/or closing costs.
CalHFA Conventional Loans: MyHome offers a deferred-payment junior loan of an amount up to the lesser of 3% of the purchase price or appraised value to assist with down payment and/or closing costs.
Read more on the California Housing Finance Agency site.
Receive Money Back by Working With Trelora
Everyone loves saving money – hence why many companies offer consumers the option to bundle their services and cut their costs. You can bundle Trelora’s in-house mortgage and title services to receive their bundle rebate; this will give you $2,500 back at the closing table, which you can use to cover some of your costs (or pay yourself back for services you already paid for, like the home inspection).
Request a Seller Assist
As the buyer, you can also request a seller assist as part of your offer to buy the home. This means that you offer extra for the home, and receive money back. If you offer $300,000 for a $295,000 home with a $5,000 seller assist, for example, you’re really paying $295,000 overall – but this allows you to roll some of your closing costs into the cost of the loan over time, which might make it easier to pay for.
Use Your Down Payment
A conventional loan allows you to put as little as 3% down on your home, so if you’ve saved up more than that for your down payment, you can transfer some of the funds to cover your closing costs.
So: are closing costs a hurdle for buying your California home?
Don’t let closing costs get in the way of owning your own home – especially when there are so many options available to help.
The benefits of owning a home are numerous – and getting into a home today, rather than waiting, means you start building equity now.
Ready to chat with a local agent? It’s free, and comes with no obligation.
