Buying a house involves spending many thousands, maybe hundreds of thousands, of dollars. And then there are, of course, the closing costs, which can run as much as 5% of the loan. But with a little preparation and some guidance from qualified real estate professionals, you can navigate closing fairly painlessly. So in order that you won’t be taken completely off guard when closing rolls around, here are California closing costs explained, broken down by category.
Inspection – Lenders usually require an inspection to ensure the house is structurally sound and up to code – and in a condition to be resold if you should default. On average home inspection fees run around $300-$500.
Appraisal – Your lender will also require an appraisal to make sure the house is worth what you want to borrow (and again to ensure they can recoup losses in case of default). The cost of an appraisal conducted by a certified professional ranges on average from $300 to $500.
Application – The loan application fee covers the cost of processing the application, including credit checks. Cost varies according to the lender and amount of time and work involved.
Origination – Also known as an administrative fee or underwriting fee, the origination fee is the most expensive of the loan-related fees in California closing costs. It’s purpose it to cover the lender’s cost of evaluating and preparing the mortgage loan, which includes notary fees, document-preparations costs, and attorney fees. It generally runs about 1% of the borrowed amount.
Prepaid Interest – Most lenders will require you to pay the interest that accrued during the period between the date of settlement and the due date of the first monthly payment.
Application – If you make a down payment of less than 20%, you may be required to secure private mortgage insurance, in which case you’ll have to pay an application fee.
Upfront Insurance – Sometimes lenders require upfront payment of the first year’s mortgage insurance premiums. And this often runs from 0.55% to 2.25% of the sale price.
Title Search – To ensure that the seller actually owns the house and that there are no liens against the property, a title search will have to be done. Generally, you can count on paying at least $200 for this.
Title Insurance – Many lenders also require title insurance as protection against any errors in the title search that would ultimately allow another person to claim ownership after the deal is finalized.
Property Taxes – As part of the California closing costs, you can usually count on paying at least two months’ worth of both city and county property taxes. Depending on the size of the house and the area, this could range from a relatively small amount to something pretty substantial.
Insurance Premium(s) – Almost without exception, your lender will require you to have homeowner’s insurance before settlement so that their investment is protected against fire, other damage, and vandalism. The amount you will pay varies widely depending on a number of factors, but is always more in an area prone to disasters such as a flood plain.
HOA Fees – If you buy in an area with a homeowner’s association that requires an annual fee, you may have to pay it ahead of time in one lump sum at closing.
As you can see with California closing costs explained, closing costs are not insignificant. The stumbling block for most buyers, though, at closing are the sheer number and variety of the costs, as well as the complexity of the closing process. But we’re here to help. We can explain and prepare you for the costs and provide the guidance you need. Want to learn more? Just call us today at (951) 438-7773 or fill out the form.