Closing costs are the fees and prepaid expenses a home buyer pays to complete a purchase, on top of the down payment. In California they typically include lender fees, the appraisal, title insurance, escrow fees, recording fees, and prepaid homeowners insurance, property taxes and interest. Your lender itemizes them in a Loan Estimate.
What do buyer closing costs include?
Buyer closing costs fall into four groups: loan costs, title and escrow charges, prepaid items and property-specific fees.
- Loan costs: origination or underwriting fees, the appraisal, the credit report, and any discount points you choose to pay to lower the interest rate.
- Title and escrow: the title insurance policy that protects the lender, your share of the escrow fee, notary or signing fees and county recording fees.
- Prepaid items: the first year of homeowners insurance, interest from the closing date to the end of the month, and deposits to start an impound account for taxes and insurance if your loan has one.
- Property-specific fees: homeowners association transfer or document fees, and a home warranty if you buy one.
Inspections are usually paid directly to the inspector during escrow, so budget for them separately.
How much are closing costs in California?
There is no single figure, because closing costs depend on the purchase price, the loan type, the lender, the closing date and the property. A loan with discount points costs more up front than one without. The day of the month you close changes the prepaid interest. A home in an association adds HOA fees. Instead of relying on a rule of thumb, ask a lender for a Loan Estimate based on a real price and loan program. Lenders provide this standardized form after you apply, and it lets you compare offers line by line.
Who pays which closing costs, the buyer or the seller?
Each side usually pays its own share according to local custom and the purchase agreement, and almost all of it is negotiable. Buyers generally pay the costs tied to their loan. Charges such as the owner title policy, escrow fees and transfer taxes are divided by county custom unless the contract says otherwise. A buyer can also ask the seller for a credit toward closing costs as part of the offer. Loan programs limit how much a seller can contribute, so confirm the limit with your lender before writing a credit into an offer.
When do I pay closing costs?
You pay closing costs at the end of escrow, when you send your remaining funds to the escrow company. Before closing, your lender sends a Closing Disclosure with the final loan terms and costs, and the escrow officer gives you the exact amount due. Funds are normally sent by wire transfer or cashier’s check. Wire fraud targets home buyers, so call your escrow officer at a phone number you already know is correct to verify wiring instructions before sending money.
Are there costs specific to southwest Riverside County?
Yes, some local items are worth checking, although most are ongoing costs rather than closing costs. Many newer neighborhoods in Temecula, Murrieta and Menifee have special assessments or Mello-Roos taxes on the property tax bill, and many have homeowners associations. California counties also send supplemental property tax bills after a change of ownership when the assessed value changes, and those arrive separately after closing. Review the preliminary title report, the tax bill and the HOA documents during escrow, and ask your escrow officer or a CPA about anything that is unclear.
Frequently Asked Questions
Can closing costs be rolled into the loan?
Some charges can be financed under certain loan programs, but most closing costs are paid in cash at closing. A seller credit, or a lender credit in exchange for a higher interest rate, can reduce what you bring. Ask your lender which options your loan allows.
What is the difference between a Loan Estimate and a Closing Disclosure?
A Loan Estimate is the lender’s early estimate of your loan terms and costs, provided after you apply. A Closing Disclosure is the final version you receive before closing. Compare the two and ask your lender about any changes.
Are closing costs tax deductible?
Some items, such as mortgage interest, points and property taxes, may be deductible depending on your situation, while many other closing costs are not. Tax rules vary by taxpayer, so ask a CPA.
Do cash buyers pay closing costs?
Yes, but fewer of them. A cash buyer skips lender fees and the lender’s title policy but still pays the escrow, title, recording and HOA charges assigned to the buyer in the contract.
Getting Ready to Buy?
Aimee Ghafouri is a real estate agent based in Temecula who grew up in Murrieta and works with buyers, sellers and investors across the Temecula Valley and southwest Riverside County.
Aimee Ghafouri, 951 Properties, CAL DRE #02193341. This page is general information, not legal, tax or financial advice. Equal Housing Opportunity.
