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How Much Should I Budget for Closing Costs in California?

How much should I budget for closing costs when buying a house in California? This is a common question among home buyers in the Golden State. And rightfully so. Closing costs can add up to thousands of dollars for a home purchase. So you want to start budgeting and saving as soon as possible.

In California, closing costs for home buyers tend to range from 2% and 5% of the purchase price. So that’s probably a good starting point, when it comes to establishing a general budget for your closing-related expenses. Just know that the amount you have to pay could fall outside of this range as well, for a number of reasons.

Budgeting for closing costs within the range mentioned above is a good place to start. It will give you some sense of how much money you need to save, when buying a home. And later on, when you actually apply for a mortgage loan, you’ll receive a more accurate estimate you can use for planning purposes.

What Are Closing Costs?

When buying a home in California, you’ll likely encounter a number of fees, charges and taxes needed to complete the transaction. Collectively, these are known as closing costs.

Some of these costs are mortgage-related, while others come from third-party services like home appraisals and title insurance. These charges and fees are required to (A) originate the mortgage loan and (B) transfer the property from seller to buyer.

In a typical real estate transaction in California, home buyers tend to pay most of the closing costs. This is especially true when a mortgage loan is being used to finance the purchase. But these things are negotiable. In some cases, a seller might be willing to contribute money toward the buyer’s costs.

How Much Do Home Buyers Pay in California?

In California, closing costs for home buyers can vary based on: (1) the lender you use, (2) the size of your mortgage loan, (3) whether or not you pay “discount points,” and other factors.

So, how much should you budget for closing costs to buy a home in California? As mentioned earlier, the typical range for buyers is 2% to 5% of the purchase price. That will give you a ballpark idea of how much you might end up paying. So it could be useful for basic budgeting purposes.

Example: Let’s assume a person is buying a home with a purchase price of $500,000. We could multiply this number by 0.02 and 0.05 to reach the 2% to 5% range mentioned above. Based on that method, the buyer’s closing costs might range from $10,000 to $25,000.

But again, this is just a ballpark. When you apply for a mortgage loan, you’ll receive an estimate of your closing costs. This will give you a more accurate picture of what you might have to pay when you close on a home purchase. You’ll receive another, more finalized document shortly before the actual closing.

Breakdown of the Various Fees and Charges

So what kinds of fees and charges are we talking about here? What’s included within a home buyer’s closing costs in California? Here are some of the most common items:

  • Mortgage origination / lender charges. Mortgage lenders often charge fees for originating (or starting) the home loan process. It’s essentially the cost of borrowing money. Depending on the type of home loan and the lender you use, you might see these costs labeled as application fees, underwriting fees, processing fees, administrative fees, etc.
  • Points. Points are an upfront charge paid to the mortgage lender. For instance, some home buyers in California choose to pay “discount points” in exchange for a lower interest rate. One point equals one percentage of the loan amount. Learn more about paying discount points.
  • Third-party closing costs.  In addition to the mortgage-related costs above, home buyers in California often encounter charges for third-party services. Two common examples are home appraisals and title insurance.
  • Taxes and government fees. Your local government will likely charge taxes and/or fees when you buy a home in California. While they’re not related to the mortgage loan directly, these taxes and fees can be rolled into your overall closing costs and paid on the day you close.
  • Prepaid expenses and deposits. In many cases, home buyers have to pay the interest on the mortgage loan between the time they close and the end of that month. This typically gets added to the closing costs. Buyers may also have to pay the first year’s homeowner’s insurance premium, and make initial deposits into an escrow account to cover future insurance and property taxes.

Need a Mortgage Loan in California?

Are you planning to buy a home in California? Do you need mortgage financing to help turn your homeownership dream into reality? Bridgepoint Funding can help.

We’ve been assisting California home buyers and homeowners with their mortgage needs for nearly 20 years. We offer a wide range of loan products, including conventional, FHA and VA. Please contact us if you have mortgage-related questions, of if you’d like to apply for a loan. We look forward to helping you!

Mike Trejo

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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