Below is a summary of the various closing costs that every home buyer or seller in California must prepare for:
Closing costs for buyers
- Mortgage application costs – These are the general charges paid to the lender during the buyer’s mortgage application. These include processing and underwriting fees, as well as mortgage insurance. Homebuyers can also use discount points to “buy down” the interest rate on a mortgage.
- Mortgage origination fee – When the underwriter approves the buyer’s loan, this fee is charged in order to create the buyer’s mortgage loan. It typically amounts to 1% of the amount to be borrowed.
- Escrow fee – These are paid to the third party company tasked to hold the transaction’s essential documents and the buyer’s earnest money deposit during escrow. This cost is typically split between the buyer and seller, but is often subject to negotiation.
- Home inspection fee – While more of an option, a home inspection is an important part in the homebuying process as it ensures that the property is in good, livable condition before ownership is transferred.
- Appraisal fee – Getting the property appraised should also be part of the homebuyer’s due diligence. This process assesses the market value of the home being purchased, helping the buyer ensure that they are not overpaying for it.
- Title search or examination costs – For the homebuyer, it’s crucial to determine whether the property’s title is free of liens and encumbrances, which prevent the seller from transferring ownership of the property.
Closing costs for sellers
- Escrow fee – While charges for escrow services can be divided between buyers and sellers, the responsibility for paying them depends on how the negotiations between the parties go. Sellers can opt to shoulder this expense if they want to make a quick sale, for example.
- Real estate agent commissions – Home sellers hold the responsibility of paying commissions owed to their listing agent, as well as the buyer’s agent. While subject to negotiation, this commonly amounts to 6% of the final sale price (3% each for the seller’s broker and the buyer’s broker).
- Title insurance and document preparation costs – Sellers are responsible for paying for the buyer’s title insurance. This policy proves that the seller has a legal right to sell the property.
- Property tax – Sellers must pay a prorated portion of the property tax, based on how long they occupied the house within the current tax year.
- Other concessions – Home sellers may also be required to shoulder additional miscellaneous expenses and charges based on what they discussed with the buyer during the negotiation stage. These can include warranty fees, mortgage discount points, and even fees for the buyer’s moving services, depending on the negotiation tactics of the buyer’s agent and the seller’s willingness to make such concessions.
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