What Are Typical Closing Costs in California?

In California real estate transactions, buyers and sellers pay “closing costs” at property transfer. These fees are separate from the purchase price and cover services rendered. Understanding these costs is important for financial planning and a smoother experience.

Costs Typically Paid by the Buyer

Buyers in California typically incur closing costs ranging from 2% to 5% of the purchase price. These expenses cover loan-related fees, title services, and prepaid items. The specific amount varies based on property location, lender terms, and loan size.

Loan-related fees are a significant portion of buyer costs. Lenders charge a loan origination fee, typically 0.5% to 1% of the loan amount, for processing the application. Underwriting fees compensate the lender for evaluating the loan application. Buyers may also pay discount points to reduce their mortgage interest rate.

Other loan-related expenses include appraisal fees ($400-$1,000) to assess property value, credit report fees, and flood determination fees. Mortgage insurance premiums, such as Private Mortgage Insurance (PMI) or FHA and VA funding fees, are also common.

Title and escrow fees are a buyer’s financial responsibility. The buyer typically pays for the lender’s title insurance policy, which protects the lender’s interest. Escrow fees, compensating the neutral third party, are often split with the seller, roughly $2 per $1,000 of the sale price plus $250. Notary fees are charged for authenticating signatures.

Government recording fees are paid to the county to register the deed and mortgage. Prepaid expenses include prorated property taxes for the remainder of the year and the first year’s homeowner’s insurance premium, often paid upfront. If the property is part of a homeowners association, prorated HOA dues and sometimes a month’s dues upfront are also included.

Additional potential costs for buyers include home inspection fees ($300-$700) for property evaluation. Survey fees may be required to verify property boundaries. Buyers may also retain a real estate attorney, incurring fees from $150 to $600 per hour, or a flat fee between $500 and $2,000 for straightforward services.

Costs Typically Paid by the Seller

Sellers in California also face a distinct set of closing costs, ranging from 2.70% to 10% of the home’s sale price, often excluding real estate commissions. These costs are typically deducted from the sale proceeds. Understanding these expenses helps sellers anticipate their net proceeds.

Real estate commissions usually represent the largest expense for sellers. In California, the average total commission, paid to both buyer’s and seller’s agents, typically ranges from 5% to 6% of the sale price. While sellers historically covered both agents’ commissions, buyers may now directly compensate their agents. Sellers can still offer to pay the buyer’s agent fee in negotiation.

Title and escrow fees are a common seller expense. Sellers customarily pay for the owner’s title insurance policy, protecting the buyer from future claims. This cost is around $1,338 or 0.17% of the sale price, varying by property value. Seller’s escrow fees are often split with the buyer, calculated similarly at $2 per $1,000 of sale price plus $250. Notary fees for document authentication are a minor cost.

Transfer taxes are another significant cost for sellers. California imposes a state transfer tax of $1.10 for every $1,000 of property value. Many cities and counties levy additional transfer taxes, which can vary widely and significantly increase the total amount. While typically paid by the seller, these taxes can be a point of negotiation.

Sellers are responsible for prorated property taxes and homeowners association (HOA) dues up to the closing date. Costs for agreed-upon repairs or inspections, like pest inspections or natural hazard disclosure reports, are typically borne by the seller. Some sellers may offer a home warranty plan to the buyer ($1,000-$1,250). Real estate attorney fees for sellers can range from $150-$600 per hour or a flat fee ($500-$2,000).

Factors Affecting Closing Costs

Closing costs in California vary substantially due to factors. Understanding these helps buyers and sellers anticipate financial obligations. Purchase price and loan amount directly influence many closing costs. Fees like loan origination, title insurance, and transfer taxes are often calculated as a percentage of sale price or loan amount. Higher-priced homes or larger loans generally result in higher overall closing costs.

Loan type affects specific fees; different loan programs (Conventional, FHA, VA, USDA) have distinct fee structures. FHA and VA loans may include specific upfront mortgage insurance premiums or funding fees. Lender practices also play a role, with varying charges for origination and underwriting. Property location significantly impacts closing costs, as local transfer taxes, recording fees, and municipal charges vary by city and county. City taxes may apply.

Negotiation between buyer and seller can alter who pays for costs. While some fees are traditionally assigned, many can be negotiated in the purchase agreement. This flexibility allows parties to tailor the transaction’s financial aspects. Service provider choice can lead to cost differences.

Property type can introduce additional fees. Condominiums or homes within homeowners associations (HOAs) often involve extra costs for HOA document transfers and initial dues. Larger or complex properties may incur higher appraisal and inspection fees.

Understanding Closing Cost Disclosures

Official documents provide detailed information about closing costs. For buyers, specific forms ensure transparency throughout the loan and closing process. These documents help buyers compare estimates and verify final charges.

Buyers receiving a mortgage loan first encounter the Loan Estimate (LE). This document provides an initial estimate of loan terms and estimated closing costs. Lenders must provide the LE within three business days of receiving a loan application. Key sections include “Loan Costs” (lender charges), “Other Costs” (third-party services, taxes, prepaid items), and “Cash to Close” (total funds needed at closing).

Later, buyers receive the Closing Disclosure (CD), a comprehensive statement of all final transaction costs. This document must be provided at least three business days before the scheduled closing date. The CD allows buyers to compare actual costs against initial estimates from the Loan Estimate. Review both documents for discrepancies or unexpected charges.

For sellers and cash buyers, the primary document detailing financial inflows and outflows is a Settlement Statement or an Escrow Closing Statement. This statement, provided by the escrow company, itemizes all credits and debits. It includes the sale price, adjustments, and all closing costs attributed to the seller or cash buyer. This document serves as the final accounting, outlining net proceeds for sellers or total cash required from cash buyers.