Summary: On average, home buyer closing costs in California range from 3% to 5% of the purchase price. A 2016 survey by Bankrate.com found that borrowers in the state pay around $2,250 in closing fees and charges.
As a California home buyer, it’s important that you understand closing costs. These mortgage and home-buying fees can add up to thousands of dollars, and most of them have to be paid when you close your transaction. This article explains where these fees come from, and also gives an overview of average home buyer closing costs in California.
What Are Real Estate Closing Costs?
Closing costs is a collective term that refers to the various fees, taxes and charges home buyers incur when using a mortgage loan to buy a house. Even if you’re paying cash for a house, you’ll still encounter some closing costs (like deed recording and tax-related fees).
In California, the closing is the final step in the home buying process. It’s when you finalize all of the paperwork and settle all outstanding fees and charges. Property ownership is then transferred from the seller to the buyer, and the deal is done.
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It is the home buyer / borrower who pays most of the closing costs. But the seller has some as well. Additionally, the seller might contribute money toward the buyer’s closing costs. This is known as a “seller concession.”
Average Closing Costs for California Home Buyers
So, how much are home buyer closing costs in California, on average? Earlier in 2016, Bankrate.com conducted a state-by-state survey to determine how much buyers were paying, on average, in both mortgage lender and third-party fees.
Here’s what they found for California:
- Mortgage lender’s origination, underwriting and processing fees: $1,144
- Third-party fees (such as home appraisal, credit reports, etc.): $1,113
- Total closing costs for home buyer: $2,257
These numbers were based on a purchase price of $200,000. Closing costs can be higher for more expensive homes, since some of the fees are calculated as a percentage of the base loan amount. (Generally speaking, a larger mortgage loan costs more to close.)
You can also think about it in terms of percentages. In our experience, home buyer closing costs in California average between 3% to 5% of the purchase price.
Discount Points Can Affect the Total
The amount you have to pay at closing also depends on whether or not you pay “points,” and how many points you choose to pay.
In this context, a discount point is a form of pre-paid interest. One point equals one percent of the loan amount (e.g., $3,000 on a $300,000 home loan). Borrowers can pay this money up front, at closing, in order to secure a lower interest rate on the mortgage loan. The idea is to “buy down” the long-term cost of borrowing by paying more up front.
If you choose to pay points, it will increase the amount you have to pay at closing. But it could significantly reduce the total amount of interest you pay over time. So it’s a trade-off.
Get a Mortgage Rate Quote and Estimate Today
We can help you figure out how much you might pay when buying a home in California. Our company has been serving home buyers across the Golden State for more than 15 years. When you apply for a loan, we can give you an estimate of what your closing costs will be. We can also provide you with a rate quote, based on our highly competitive pricing model.
Please contact our knowledgeable staff to get the process started, or with any questions you have. We look forward to helping you buy a home!