This article is the latest in a series that speculates on future housing market conditions…
In the San Francisco Bay Area, home buyer closing costs average about 3% to 5% of the purchase price. You should receive an estimate in advance, when you first apply for a mortgage loan.
Here’s an in-depth look at the fees and charges you might encounter when using a mortgage loan to buy a home in the Bay Area.
What Are Closing Costs?
Closing costs are the fees, charges and taxes required to (A) originate the mortgage loan and (B) transfer the property from seller to buyer.
The home buyer pays for many of these costs, while others are paid by the seller. And like many things in real estate, it’s negotiable. For instance, a Bay Area home buyer might ask a seller to cover a portion of his or her closing costs. This is known as a “seller concession.” Or the two parties could each pay their own. It varies.
How Much Do Bay Area Home Buyers Pay?
The total amount of closing costs you pay will vary based on several factors, including: (1) the lender you use, (2) the state in which you reside, and (3) the size of your mortgage loan.
Location is a big factor. According to Bankrate.com, California is one of the most expensive states, with closing costs well above the national average. This is partly because California has some of the most expensive housing markets in the country, and the price of the home can affect the buyer’s closing costs.
In the San Francisco Bay Area, home buyer closing costs typically range from 3% to 5% of the purchase price. But they can fall outside of this range in some cases. This is when there’s a mortgage loan involved. Buyers who pay cash for a house encounter fewer closing costs, because they’re not dealing with a mortgage lender. But even in the case of an all-cash purchase, there are still tax and appraisal fees to be paid.
If you multiply the purchase price by 3% to 5%, you’ll have a general idea as to how much your closing costs will be. But this is an approximation. Your mortgage lender should give you a more accurate estimate of closing costs when you apply for the loan.
Breakdown of Home Buying Fees and Charges
Here’s a breakdown of some of the common costs encountered when buying a home in the Bay Area (with a mortgage loan). This list is not complete. You could encounter additional fees not listed below.
- Mortgage application fee — As the name suggests, this is the fee borrowers sometimes pay when submitting a loan application. Application fees tend to range from $200 to $500 on average. In some cases, the lender might agree to waive the application fee. Other times they are non-negotiable. Like many things in the mortgage world, it varies.
- Loan origination fee — “Origination” is an industry term used to described the creation of a loan. So the origination fee is what the lender charges to originate or initiate the home loan. Origination services might include loan application processing, underwriting, and other administrative services. Origination fees are quoted as a percentage of the total loan amount. They usually cost around 1% of the loan amount. So the bigger the loan, the higher the origination cost.
- Credit reports — When you apply for a mortgage loan in the Bay Area, the lender will check your credit reports and scores. They do this to see how you have borrowed and repaid money in the past. The lender has to pay a fee to obtain this information, and sometimes that fee is added to the borrower’s closing costs. This is a relatively small fee, usually around $30 – $40.
- Discount points — Some borrowers pay “points” at closing in exchange for a lower mortgage rate. One point equals one percent of the loan amount. So if you pay one point on a $400,000 home loan, you’ve increased your closing fees by $4,000 (1% of 400k).
- Title search and insurance — Title companies examine the title (ownership) of the home you are buying, to ensure there is no conflict that might result in future liens or disputes. They charge a fee for this service, which is often added to the home buyer’s closing costs.
- Underwriting fee — It’s the mortgage underwriter’s job to verify all of the information in your loan application, to make sure you meet all guidelines and requirements. This cost might be included within the “processing” fee, or listed separately. It varies.
- Property survey — This survey shows the exact size and layout of the property and lot. Mortgage lenders review these documents to ensure the home is not encroaching onto another property. If there’s already a current survey, the lender might not order a new one. If a survey hasn’t been performed for a while, a new one will be requested. The cost can vary, but it’s usually a few hundred dollars.
- Government recording fees — Local government officials record the change of ownership / deed whenever a home is sold. These fees typically range from $50 to $150. Recording fees are usually paid to the city or county to cover the cost of creating new land records.
- Home insurance premium — Your Bay Area mortgage lender will probably require you to have a homeowners insurance policy in place before closing on the home. Lenders typically require the first year’s insurance premium to be paid on or before closing day. According to the Insurance Information Institute, the average homeowners insurance premium costs about $1,000 per year.
These days, home appraisals are generally paid for at the time the service is provided. So they don’t get added into the closing costs in most cases.
Ready to More Forward?
Are you planning to buy a home in the Bay Area? Do you need a mortgage loan to help finance your purchase? Bridgepoint Funding can help.
We serve home buyers and mortgage shoppers in the Bay Area, with an emphasis on the East Bay in particular. We offer a variety of loan programs with flexible requirements. If you have a question about Bay Area closing costs, or if you’d like to apply for a loan, please contact us. We look forward to helping you!