Closing Costs in California

Table of Contents

How Much Are Closing Costs in California?
Buyer vs. Seller Closing Costs in California
California Seller Closing Costs
California Buyer Closing Costs
How to Reduce Closing Costs in California
California Closing Costs Bottom Line

How Much Are Closing Costs in California? 

Closing costs in California typically average around 2.5% of the home's sale price for the buyer and around 7.5% for the seller. For example, if a house sells for $500,000, the buyer's closing costs would come out to around $12,500, while the seller's closing costs would be approximately $37,500. 

However, you should keep in mind that California closing costs vary significantly depending on various factors, including the home's final sale price, the transaction's complexity, and what the buyer and seller negotiate. For example, if the seller doesn't use a real estate agent, they will save 5-6%, lowering their closing costs significantly. 

Remember that, unlike the down payment, closing costs are not put toward paying down your loan balance. These are separate fees paid to financial institutions and service providers who help process the transaction and close the sale. So, you must save room in your budget for these additional costs. 

Buyer vs. Seller Closing Costs in California

• Buyer: Typically pays for loan-related fees (origination, appraisal, inspection), title insurance for the lender, escrow fees, recording fees, prepaid taxes and insurance, and other miscellaneous fees.
• Seller: Usually pays for the agent's commission, title insurance for the buyer, transfer taxes, and their portion of the escrow fees.

California Seller Closing Costs

1. Real Estate Commission
2. Title Service Fees
3. Owner's Title Insurance
4. Transfer Tax
5. Recording Fees
6. Miscellaneous Fees

1. Real Estate Commission

The biggest closing cost for sellers in California is the real estate commission, which is usually between 5% and 6% of the home's selling price. This fee can be negotiated, and some sellers can avoid it altogether by selling by owner, but studies show that selling with a realtor is worth it in the long run as you'll get a higher price, which will more than cover this fee. 

2. Title Service Fees

When you sell a home, you must transfer the title to the new owner, which requires a title search to verify the ownership and ensure there are no outstanding issues or liens. Typically the buyer and seller will both pay for a title search in California, which is usually around 0.3% of the home price. 

3. Owner's Title Insurance

Title insurance protects you if there are any mixups and someone else has a claim to the home's title. Although uncommon, errors in ownership transfer and the chain to title do occur and can be expensive to solve. So the owner will be responsible for taking out their own title insurance policy, which is usually somewhere around $500 to $1,000. 

4. Transfer Tax 

California charges a tax to transfer your home to a new owner. The current tax rate is $1.1 per every $1,000 in assessed value or about 0.11%. So if the home is worth $1 million, the tax would be around $1100. 

5. Recording Fees 

California also charges a fee to record your deed and mortgage information with the local authority. The fee varies depending on the location but typically comes out to about $200 to $300. 

6. Miscellaneous Fees 

Additional fees are always required at closing that are unique to the transaction. For instance, if it's a slow market, the seller may offer incentives to the buyer to entice them to make an offer, which will be paid at closing. Also, if their seller has any outstanding homeowners association fees, mortgage prepayment fees, or outstanding property taxes, they will likely be due at closing. 

California Buyer Closing Costs 

1. Appraisal Fee
2. Home Inspection Fee
3. Loan Application Fee
4. Credit Check Fee
5. Loan Origination Fee
6. Lender's Title Insurance 

1. Appraisal Fee

You'll be required to get an appraisal if you finance the purchase of the home to confirm to the bank that you didn't offer too much. The cost of the appraisal is the responsibility of the buyer and typically costs about $300 to $600. 

2. Home Inspection Fee

In addition to having the price evaluated, you'll also want to have its condition inspected during the due diligence period. Similar to the appraisal fee, the cost of a home inspection is the buyer's responsibility and typically costs about $300 to $600. 

3. Loan Application Fee

Mortgage lenders will often require you to pay a fee to apply for a mortgage to cover the costs required to underwrite the loan. The exact fee will vary depending on the lender issuing the loan but is usually anywhere from $200 to $500. 

4. Credit Check Fee 

The bank may also charge the buyer a fee to pull their credit report, which is separate from the application fee. Some lenders will waive the credit check fee, but it's typically at most $100. 

5. LoanOrigination Fee

A loan origination fee is charged by the lender for processing the loan application. These fees typically range from 0.5% to 1% of the loan amount, which would be $4,000 to $8,000 for a $800,000 loan. 

6. Lender's Title Insurance 

Just like the homeowner, the lender will also want protection if there is an issue with the title. The cost of the lender's title insurance policy is typically covered by the buyer and is typically around $500 to $1,000. 

How to Reduce Closing Costs in California 

1. Shop Around For the Best Rates
2. Negotiate with the Seller or Buyer
3. Look For Down Payment Assistance

Closing costs can often be a significant burden for new homebuyers, who may have already spent their life savings on a down payment. Therefore, many first-time homeowners want to know how they can reduce their closing costs when purchasing a home in California. Certain costs are set in stone, while others are more flexible. Here are a few tips for reducing your closing costs. 

1. Shop Around for the Best Rates

Many of the closing costs for buyers in California come from getting a loan. If you shop around at different lenders, you may find some who are willing to waive application fees, credit check fees, and other costs related to obtaining a loan. 

2. Negotiate with the Seller or Buyer

If you have the upper hand in a negotiation, you may be able to persuade the other party to cover some of your closing costs. For instance, if you are a buyer and you know the home has been on the market for a while without offers, you may use this to your advantage to negotiate a buyer's incentive. 

3. Look For Down Payment Assistance

There are plenty of programs out there that help first-time homeowners and other borrowers reduce their closing costs, often in the form of forgivable grants and low-interest loans. You'll have to do your research and make sure you qualify, but this can be a great way to reduce your financial obligations at closing. 

California Closing Costs Bottom Line

Closing costs in California can add a significant amount to the overall cost of buying or selling a property. As a seller, you can avoid some of the highest closing costs, like the real estate commission, but it's not always worth it. And as a buyer, you'll need to ensure you have enough cash to cover your closing costs on top of the down payment. By understanding the various closing costs involved and planning accordingly, both buyers and sellers can better manage their expenses and ensure a smoother closing process.