What Will Be My Homebuyer Closing Costs?

 

The cost to buy a house depends on lots of things, including the type of loan, the type of property, the final sales price, and even your credit rating.

Cost to Buy a House: Upfront Out-of-Pocket Costs

Earnest Money Deposit (EMD)Earnest money depoit to buy a home in san diego

As soon as the seller accepts your offer to buy a home, you will need to submit an Earnest Money Deposit (EMD) to the escrow officer.  This shows that you are a serious buyer. You have money, and you are committed to buying this house.  You specify the EMD amount in your original offer to the seller, which averages around 1% of the offer price. These funds are held by the escrow company in their trust account.

Home Inspection

As soon as you open escrow, you can hire a home inspector to check for any issues. The home inspection fee depends on the size and type of property, and the inspector you choose.  Most home inspections cost between $300-500. Your home inspector may recommend further inspections, such as for the roof or pool.

Appraisal

If you are taking out a mortgage to buy your home, the lender needs to have an appraisal done. The appraisal ensures the property is worth at least the purchase price. Your lender usually asks you for a credit card to pay for it. Effective December 1, 2016, the appraisal fee for California VA borrowers is $600. For all other borrowers, appraisals usually cost between $400-$500.

 

Cost to Buy a House: Closing Costs

All other fees and charges are paid upon close of escrow. About a week prior to close of escrow, you will submit a wire or cashier’s check to the escrow company, who will pay for everything on your behalf. All of these charges are called closing costs.

It’s difficult to know exactly how much you will need to pay ahead of time. The final closing costs aren’t calculated until after the title is transferred to your name. When the escrow company asks you for the wire or check, they add a few hundred dollars’ padding, to ensure they have enough to cover all expenses.  As soon as the final costs are calculated, they will send you a check for any over-payment.

Here is a list of common fees, to give you a general idea of the total cost to buy a house in San Diego County. I have also included an example at the end, for someone buying a $500,000 house with a $400,000 mortgage.

Closing costs are either non-recurring (one-time), or recurring (pro-rated,on-going).

 

Non-Recurring Closing Costs

Lender Fees

Here’s a list of some of the lender fees for a conventional mortgage. Keep in mind that some loan programs charge only some of these, and others charge only one flat fee.

  • Loan Processing Fee
  • Loan Underwriting Fee
  • Tax Service – the County will contact the lender if a buyer doesn’t pay property tax, so the lender can pay it and not risk losing the house to a tax lein
  • Origination – this can be a flat fee or percentage of loan.  If a lender is charging 1.00 point for origination, this is 1% of your loan balance.  1.00 point of a $500,000 loan equals $5,000 in fees.
  • Discount Points – You might have the option to pay discount points, in exchange for a decrease in your interest rate. Each discount point is 1% of the loan balance.  A lender charging 2.00 discount points on a $500,000 loan is charging $10,000 in fees.
  • Mortgage Insurance – Required if the Loan-to-Value ratio is higher than 80%. Your lender might give you the option to pay your mortgage insurance in one lump sum at the beginning, instead of paying monthly.
  • Credit Report Fee ($20-25)
  • Flood Certification Fee – to determine if the property is in a flood zone.
  • Appraisal

Escrow Fees

The escrow company provides buyers with a Closing Statement, which is the Final Settlement Statement that lists out all closing costs. They handle all the funds in a real estate transaction.  The escrow fee is based on the purchase price, which is approximately $2 per $1,000 purchase price, plus a $200 base fee (around $1,200 for a $500,000 home).  Smaller additional fees may include courier, document preparation, loan tie-in, HOA transfer, and other services provided over the course of the escrow.

Title Fees

The title company provides title insurance to both the buyer and the lender.  The seller usually pays for the buyer’s owner’s policy, while the buyer pays for the lender’s title policy.  Title insurance protects a policyholder against challenges to rightful ownership of real property, which arise from circumstances of past ownership.  The lender’s title policy premium is a one-time fee, based on the mortgage amount. Other title charges include sub-escrow, endorsement, notary, and County recording fees.

 

Recurring Closing Costs

The cost to buy a house includes recurring charges. Recurring costs will continue after escrow closes.  Closing costs usually include mortgage interest for the current month, HOA fees (if any)  for the next two months, any property taxes the seller has already paid, and the annual homeowner’s insurance premium (if any).

Impound Account

Many borrowers have impound accounts, which are attached to their mortgage.  Some loan programs require them. The monthly mortgage payment includes a contribution to the impound account. The lender uses this impound account to pay for homeowner’s insurance and property taxes on your behalf. They want to be sure  you don’t miss a payment, so they do this for their own piece of mind!

Your first impound account deposit is often the second highest cost to buy a house, after your down payment. The impound account payment out of escrow may include 3 months of homeowner’s insurance and at least six months of property taxes.  This money accumulates to pay for these large bills when they come due.

 

Closing Costs: Examplewhat-are-my-closing-costs in san diego to purchase home

Here is an example of the cost to buy a house for a $500,000 purchase and $400,000 loan amount. This does not include any HOA, Mello-Roos, or Private Mortgage Insurance fees.

  • Lender processing, underwriting, and appraisal: $2000
  • Escrow fees: $1200
  • Title fees: $1000
  • Prepaid interest, 12 days: $600
  • Homeowner’s insurance premium, first year: $650
  • Impound Account – Homeowner’s Insurance: 2 Months $100
  • Impound Account – Property taxes:  6 Months $3000

Total Closing Costs: $8550 (not including down payment, mortgage insurance, HOA or Mello-Roos fees)

Your lender can give you a closing costs estimate, based on the loan program you choose.

 

The Bottom Line

When you plan to buy a home, be sure to budget for closing costs.  The cost to buy a house includes one-time fees for lender, escrow, and title. Planning for these expenses ahead of time will make the process easier.

The Consumer Financial Protection Bureau released a new toolkit to guide consumers through the process of shopping for a mortgage and buying a home. The Home Loan Toolkit is a helpful tool to help you plan your purchase.

 

Ryan Blanco-Realtor-San Diego Real Estate Blog

About Me: I am a full time agent and I dedicate 100% of myself and my time to my valued clients in addition to the San Diego communities that I serve. It is imperative that I continuously evolve with local and national trends in addition to always looking ahead of the industry. It is a must to always provide the best service to my clients, their families and friends.

619.384.2248
Ryan@RyanYourRealtor.com

 

 

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