The sum of the fees associated with the buying (or selling) of a home is referred to as the "closing costs." Certain fees are automatically assigned to either the buyer or the seller; other costs are either negotiable or dictated by local custom. Closing costs can vary depending on many factors such as purchase price, commission (typically paid by the seller), and the location. The practice of who typically pays for certain closing costs varies by geographical area in the state of California.
It is important to understand what you are obligated to pay for under the Purchase Agreement. Make sure you read the Purchase Agreement carefully! Ask your RealtorŪ for a copy of the Purchase Agreement before you write an offer, so that you have time to review the Purchase Agreement and clarify any questions you might have.
Some typical buyer closing costs may include the following. Note: what party pays for some of these costs may be negotiable under the Purchase Agreement, and not mandatory to be paid by either the buyer or seller.
- The down payment
- Buyer's portion of the escrow holder's fee
- Loan fees (points (aka: loan origination fee), application fee, credit report fee, tax service fee, flood certification fee)
- Appraisal fee
- Prepaid interest on the loan
- Private Mortgage Insurance (PMI)
- Any impounds on the loan
- Mortgage broker's fee
- Homeowner's insurance
- Buyer's portion of title insurance
- Inspection fees (if not paid for at the time of the inspection)
- Home warranty plan (aka home protection plan)
- Homeowner's association transfer fee and fee to provide documents
- Homeowner's association dues (prorated)
- Property taxes (prorated) - read further information below
- Gas earthquake safety shut-off valve (applies in certain areas only)
- Other fees as per the Purchase Agreement
- Miscellaneous fees (notary fees, messenger fees, etc.)
The most common of the buyer's closing costs are the fees involved in the loan. When a buyer applies for a loan, lenders are required to provide them with a good faith estimate of their loan's closing costs. It is very important that you make sure you fully understand what the fees are that are associated with your loan. The fees vary according to several factors, including the amount of the loan, the type of loan they applied for and the terms of the Purchase Agreement. Some of the closing costs, especially those associated with the loan application, may be paid in advance.
Can you negotiate who pays for closing costs?
In addition to the sales price, buyers and sellers frequently include closing costs in their negotiations.
As you can see, there are many closing costs for the buyer. If a buyer does not have the cash for the down payment and the closing costs, then the buyer may offer to pay a certain price for the property in return for the seller paying some or all of the allowable closing costs. Ask your realtor for guidance when you are negotiating, and make sure that the terms are clearly written down on the Purchase Agreement.
How do prorations work?
At the closing, certain costs are often prorated (or distributed) between buyer and seller. The most common proration is for property taxes. This is because of the property tax due date. The seller is "charged" for that portion of the property taxes when they own the property, and the buyer's responsibility for the property taxes would typically start as of the date the buyer owns the property. The escrow holder would use the most recent property tax bill and at the close of escrow, the escrow holder would prorate the amount due between the parties accordingly.
Understanding the property tax calendar:
Property taxes are due as follows in the state of California:
- The property tax year (fiscal year) is from July 1 to June 30. Property is taxed as of January 1 for payment in the following fiscal year. Property taxes are paid in two halves: July 1 to December 31, and January 1 to June 30.
- The first half of regular secured property tax bill (covering the period from July 1 to December 31) is due November 1st, and delinquent if not paid by December 10th at 5 pm (a postmark before midnight is considered timely).
- The second half of the annual property taxes is due February 1st, and delinquent if not paid by April 10th at 5 pm (a postmark before midnight is considered timely).
(Note: If the delinquent date falls on a Saturday, Sunday, or government holiday, then the due date is the following business day.)
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