Most home buyers are well aware there will be “Closing Costs” associated with the purchase of a home. However, in many cases they don’t find out what the total costs will be until just prior to the closing. And then scramble to come up with additional cash to cover both the purchase price, down payment and closing costs. This can (and should) be avoided by obtaining from your real estate agents an “estimated closing costs” statement early on in the home buying process. In California, there is a C.A.R. (California Association of Realtors) Form EBC for just this purpose that I use for my clients. For home sellers, there is a similar C.A.R. Form ESP (“Estimated Seller Proceeds”).
Much of this information is also available from the lender (assuming there will be lender financing involved) by requesting a “Good Faith Estimate” (GFE), which itemizes the costs of the loan and estimates closing costs. Also, if the real estate agent is uncomfortable estimating closing costs for their buyers, the Escrow Agent can be requested to provide a similar statement called a “Buyer's Estimated Closing Statement” (often referred to as a “HUD-1” Form) much earlier in the escrow process than is normally done.
And finally, for those buyers that may want to estimate closing costs prior to searching for a home or working with a realtor or escrow agent, the U.S. Dept. of Urban Development (HUD) provides a fill-able HUD-1 form that can also be used to estimate closing costs.
In California, the closing costs, generally speaking, will run about 3% - 5% of the cost of the home, depending on whether the buyer is paying all cash, or financing a portion of the purchase price, the amount of down payment, etc. Following is a list of the most common buyer closing costs generally incurred:
- Realtor commissions (usually paid by seller)
- Home inspection costs (inspection costs paid by buyer, repairs negotiable)
- Pest inspection costs (negotiable - typically paid be seller for normal inspection)
- Title Insurance
- Escrow Fee - typically split 50/50 with sellers, in So. California
- Document Preparation Fee
- Notary Fees
- County Recording Charges
- Property Tax Proration - prorated from the date of ownership.
- Homeowner's Association (HOA) Transfer Fee and document preparation fee, if applicable (negotiable - often paid by sellers)
- Prorated HOA dues, if applicable.
- Home Warranty (usually paid by Sellers)
- Other misc (Government recording charges to process the change of ownership documents from the seller to the buyer, recording of deed, Transfer taxes, city / county taxes if applicable, and other fees as may be specified in the purchase agreement)
- Loan Financing Related:
- Down payment
- Lender loan origination charge.
- Lender charge for interest rate “buy-down” if applicable
- Adjusted origination charges, if applicable depending on borrower’s financial situation
- Appraisal fee
- Mortgage insurance premium, depending on down payment amount and other factors
- Credit application and report fee
- Tax service fee
- Flood certification fee, if applicable
- Pre-paid interest to date of first payment
- Home owner’s insurance premium for the 1st year, in certain circumstances.
All closing costs will be spelled out in the buyer’s final closing statement provided by the escrow company. However, it may be worthwhile to get an estimate of what the closing costs will amount to, in advance of starting your home search. Your real estate agent should be able to assist you in this.