Buying a home is likely the largest purchase you will ever make. There is a process that comes with it, along with a lot of paperwork.
There are professionals involved, all of them responsible for their parts in ensuring you safely purchase the home you want.
As part of this process, you’ll need to spend money on closing costs. This is something you will want to plan and save for, the same goes for your down payment.
What are Closing Costs
The many professionals involved in the process of purchasing your home all need to be paid, and this is where closing costs come in.
For example, the bank will have lender fees for your mortgage. You will need to pay the title company for your title search and title insurance. You will need to pay an appraiser, and also a home inspector.
There is an application fee for your loan, your loan origination fee, taxes, escrow fee, title search, and title insurance to prepare for. You may also have fees like a recording fee, notary fee, or processing fees.
You will need to be prepared to have your earnest money deposit (EMD) ready when you submit your offer as well. This money is held by an escrow or title company while the offer is being considered and shows the sellers you are serious about your offer.
The above-mentioned costs are all nonrecurring, or one-time, costs. There are also recurring costs to keep in mind when purchasing a home.
Recurring costs when you purchase a home will be things like property taxes and HOA fees. If your down payment is less than 20% of the purchase price of the home, you will also be required to purchase private mortgage insurance (PMI).
Keep in mind that sellers are also paying closing costs. California home sellers typically pay between 5% to 9% of the total sale price at closing.
What California Homebuyers Typically Pay In Closing Costs
When buying a home in California, it is normal for homebuyers to spend 1% to 3% of the total home cost in closing costs.
That means if you are purchasing a home for $500,000, you can expect to pay between $5,000 to $15,000 in closing costs.
This amount can vary based on many factors. For one thing, in real estate, who pays for what is always negotiable. There is no rule set in stone saying what you will pay for.
When you make an offer, closing costs are part of the negotiations. Of course, you will be in a much stronger position during these negotiations if you are also prepared to pay the 1% to 3% of closing costs if you need to in order to save somewhere else during the negotiations.
Tips For Saving on California Closing Costs
Now that you know what some of these costs are, you’ll likely want to know how to save on them. Some costs, like property taxes, are simply unavoidable. But there are options for most costs as you go ahead.
The first way to save is to shop around.
You can shop around for a title company. The premiums on your title insurance will likely be similar across different companies, but the settlement fees can vary. When you go to compare companies, you’ll need to make sure you know all their costs and what they cover. The costs between things like your title search, and smaller costs like courier fees, are where you can possibly find a few hundred dollars in savings.
You can shop around for a mortgage lender. When you compare home loans, you will want to compare your mortgage rate first. This is where the most savings over the long term can be found. But if you have the same rate from two companies, you can also look at their loan origination fees and compare those.
You can negotiate with the lender. You don’t have to accept their first offer. If you have a strong profile–meaning you have a strong income and high credit score–you can try to negotiate with the bank to convince them to lower their fees for your mortgage.
Payout of pocket to save on loan fees. While this won’t be an option for most home buyers, you can also avoid loan fees altogether by purchasing a home with cash. This avoids many of the closing costs.
Negotiate with the sellers. When it’s a strong buyer’s market and sellers are more eager to sell, you can find sellers who will cover the closing costs without much negotiation. When the market is less desperate, you can negotiate with sellers to add the closing cost into the price of the home. So if the property is $500,000, you can offer $510,000 to cover $10,000 in closing cost.
Keep in mind that as far as the bank is concerned, you are now paying $510,000 just for the house. This means that the home would still need to appraise for the additional expense.
You can ask the lender to pay the closing costs. This entails the lender then charging a higher interest rate. Of course, you will still end up paying for this, but over the long term instead of upfront.
Be Prepared For Closing Costs Before You Buy
While it is always great to find ways to save money, it’s best if you are also prepared to pay for closing costs when buying a home in California. This gives you a stronger point for negotiations when you are at the offer table with the seller.
It also gives you a stronger standing point if you decide to negotiate with your bank about the loan origination fees. It will mean you can focus on getting the lowest interest rates for long-term savings on your mortgage, and also the lowest cost for your home overall.
What may be most important is that it will cause you less stress because you know you have the money if you need it. The more comfortable you are during your home purchasing experience, the more you’ll be able to enjoy the excitement for your new home.
📞 Have Questions? Ask The Chris Eckert Real Estate Team
Give The Chris Eckert Real Estate Team a call today at 650.627.3799 to learn more about local areas, discuss selling a house, or tour available homes for sale.