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  • Writer's pictureNathan Zarcaro

5 Ways to Avoid Closing Costs in California and Save Up to $10,000

Updated: Oct 22, 2023


California routinely ranks at the top of national rankings for high cost of living states across the country. This is true across the board, but particularly with housing.


Buying a house in California is hard enough, but then there are the ridiculously expensive closing costs to consider.


What many potential home buyers in the Golden State don't realize, though, is that there strategies out there to avoid some of the costliest parts of a home closing.


Here is how to avoid closing costs in California and save up to $10,000!



California closing cost calculator


How expensive are closing costs in California?


California closing costs are among the most expensive in the United States, and buyers should expect to pay between 2-4% of their new home's purchase price in closing related expenses.


For the average CA home sold at $747,000 or so, buyers should expect to pay between $14,940 and $29,880 to complete their home purchase.


The exact figure will vary from area to area, and is dependent upon:


  • The size of your down payment

  • Real estate tax rates in your county/town




1. The size of your down payment


Some real estate experts count your down payment as a closing expense, and others don't. We don't count your down payment in our estimates, but it will still play a role.


Every extra dollar in your down payment could lower the cost of your loan origination fee, which is oftentimes assessed as a percentage of the amount of money borrowed.



2. Real estate tax rates


You'll likely need to establish an escrow account and deposit a certain number of months of property/real estate taxes into it as a condition for closing. While CA does not have the highest real estate property taxes in the country, your taxes can still be costly by virtue of the high assessed home values statewide.


The five highest property taxed counties in CA by median annual tax bill are:


  1. Marin County ($7,433)

  2. Santa Clara County ($6,650)

  3. San Francisco County ($6,485)

  4. San Mateo County ($6,424)

  5. Alameda County ($5,539)


Now, here are the lowest:


  1. Modoc County ($1,167)

  2. Tehama County ($1,371)

  3. Lassen County ($1,422)

  4. Siskiyou County ($1,436)

  5. Trinity County ($1,469)



Expenses included in your closing costs


The list of fees and expenses that you'll pay for on closing day include:


  1. Your down payment

  2. Lender fees

  3. Title fees

  4. Property fees


On the day of your closing, it is typical to bring one bank check to your attorney's office for all of these expenses. Then, your attorney will be responsible for paying all involved parties what they are owed.



1. Down payment


Though not *technically* a closing cost, your down payment will likely be included in your total cash to close, the value of the check you'll bring to the meeting.


In most instances, this amount will be between 10-20% of the purchase price of your home, but it could be less or more depending on your preferences!



2. Lender fees


Your mortgage lender will assess a variety of fees that you'll have to pay for, including:


  • Loan origination fee: Typically, between 0.5%-1% of the loan amount. On an $800,000 home loan, that is $4,000-$8,000.


  • Mortgage application and underwriting: Up to $1,000 is possible.


  • Title insurance: Banks mandate that you purchase title insurance, which is a one-time fee that will cover you in the event that the home's title search fails to uncover a potential issue that surfaces.



  • Prepaid mortgage interest: When you close, you'll need to prepay mortgage interest for the remainder of that month. Closing on the first day of a month means you'll have to pay a month of interest before your first official mortgage payment.


  • Miscellaneous: Low-cost incidentals like courier or credit reporting fees. Budget for an extra $100 or so.



3. Title fees


Next are your title fees.


When you buy a home in California, you'll need to find a real estate attorney or title company to perform a title search, which will search for any legal problems, claims to ownership, or liens on your new home.


It could cost up to $1,000 or more, but it is incredibly important to make sure everything is in good legal standing.


The Golden State, like many other states across the country, also assesses a home transfer tax, which varies by county.


Sellers are usually responsible for this fee, but you may need to pay to have your title and home deed correctly registered in your town or county.



4. Property fees


Finally, you'll face one more bucket of expenses involved in getting your new home ready for ownership to officially be transferred.


Among these fees are:


  • Home appraisals: Your home will be appraised prior to closing. Your lender wants an independent home appraiser to verify that the amount of money you're borrowing isn't worth more than the home itself. You can expect your appraisal to cost $500-$750.


  • A homeowner's insurance policy: Your lender will mandate that you prepay a year of homeowner's insurance. The size of your home and certain features will establish what your premiums are likely to be. Features like swimming pools add to costs, but the average policy in California costs $1,974 for a $450,000 dwelling.


  • Flood certification: You may need to have a flood certification completed to ensure that you don't live in a flood zone. If you do, you'll need to buy flood insurance. Your certification should cost less than $50.


  • Survey: A property surveyor will assure that all property lines are clear, documented, and known to you. Expect to pay $200-$500, depending on the size of your lot.


  • Real estate tax: You will likely pay a certain number of months of real estate taxes at closing to fund an escrow account, as we mentioned earlier. It depends on your county's or town's tax collection schedule, but I think my wife and I paid three months.


Though not directly a closing cost, a home inspection is also a great idea!



How to avoid California closing costs


Here are 5 main strategies to consider if you're a CA buyer looking to avoid closing costs, including:


  1. Taking a no origination fee mortgage

  2. Avoid FHA loans

  3. California closing cost assistance programs

  4. Negotiate with the seller

  5. Negotiate with your lender



1. Take a no origination fee mortgage


Did you know that there are home loans available to you right now that don't assess origination fees? That's right! Lenders such as Ally Bank, Better, and Homefinity are available to California buyers.


This is huge news.


Loan origination fees tend to be the largest single closing cost you'll face, and an $800,000 home loan without this fee could save you $4,000-$8,000!



2. Avoid FHA loans


Many buyers, particularly first-timers, flock to Federal Housing Administration (FHA) loans due to their low 3.5% down payment requirement. But these loans carry a costly 1.75% mortgage insurance premium, much higher than the traditional 0.5-1% loan origination fee on Conventional loans.


This will increase your closing costs dramatically without even building equity in your home.



3. California closing cost assistance programs


Similar to no origination fee mortgages, many home buyers in California are unaware that there are a number of state closing cost assistance programs available to them.


Programs to research and ask your lender about include:



Do note, however, that these programs may require you to take a mortgage from a specific lender or company, meaning you can't take the assistance and "bundle" it with a no origination fee home loan.


If you qualify, the Path to Homeownership Closing Cost Assistance program can provide you up to $10,000 in closing cost funds.



4. Negotiate with the seller


If you have leverage at a time when the real estate market has lots of inventory but few buyers, sellers will entertain offers they otherwise may not have entertained.


You may be able to negotiate your closing costs with the seller, where he/she will cover a portion of your expenses as a condition for you buying a home. There are no guarantees, but it does not hurt to ask.



5. Negotiate with your lender


Similarly, you may also ask your lender what they may be able to do to lower your closing costs. Again, no guarantees, but there are times where your lender can and will waive your mortgage application and/or underwriting fees.



Conclusion


California home buyers have to contend with some of the world's priciest real estate, and adding closing costs in addition to this can make a tight financial situation even tighter.


Luckily, by adapting some or all of the strategies here, you can save and avoid up to $10,000 - or more - in closing costs!


Which of these strategies are you most likely to use? Scroll on down and let me know in the comments below!



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About Nathan Zarcaro

Nathan Zarcaro is the founder of The Student Debt Destroyer and is passionate about personal finance related causes.  A 2018 graduate of Providence College's Liberal Arts Honors Program, Nathan studied Finance, and has worked for industry leaders in both finance and healthcare.  In his free time, Nathan enjoys playing golf and traveling with his wife Brigid.

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