What are Closing Costs?
During the last stage in the home selling process, called the closing or settlement, the buyer and the seller of the property sign the final ownership and insurance paperwork, in effect making the buyer the legal owner of the house. It is also during the closing stage when both parties pay the closing costs – fees that are due upon the settlement of the home sale. Typically, most of the closing costs are shouldered by the buyer, but the seller may cover some of these costs, depending on their agreement. The fees and legal requirements may differ based on the state and municipality of the sold property, so it is best for homebuyers to team up with a real estate expert and learn about the closing costs in a particular location before they make an offer.
Average Closing Costs in Santa Cruz, CA
In general, a homebuyer in Santa Cruz, California pays around 2% to 5% of the purchase price in closing costs, or between $3,000 and $7,500 in closing costs on a $150,000 home. If you are in the market to buy a home in this county, your lender is required to give you a Good Faith Estimate (GFE) of the closing costs within 3 days of applying for your home mortgage loan. While this is just an estimate and some of the fees listed here may change, this will give you a good idea of what to expect during settlement. Your lender will also provide you with a HUD-1 Settlement Statement prior to closing date. This document outlines the final closing costs that you, as homebuyer, will have to pay. Compare the costs listed in the HUD-1 Settlement Statement with the ones on the GFE to see what changed, so you can discuss with your lender which items are necessary and which ones are not. Take note that many of the closing cost fees are negotiable.
Breakdown of Closing Costs in California
Here are the lists of standard closing costs for both the buyer and the seller in Santa Cruz, California.
Buyer’s Closing Costs in Santa Cruz, CA
Loan Origination Fee Generally around 1% of the loan amount.
Points Each point is equal to 1% of the loan amount. Points buy down the interest rate typically by 0.25% per point.
Application Fee Paid to the lender or the broker to check credit and process the initial loan application.
Escrow Fee Paid to the escrow company at closing.
Appraisal Fee Paid to the appraiser who determines the value of the property.
Title Search and Examination Fee Paid to the lender to research the property’s title and find out if there are liens and who the rightful owner of the property is.
Seller’s Closing Costs
Broker’s Commission The commissions paid to the realtor(s) or real estate broker are usually 6% of the sales price (3% paid to the buyer’s broker and 3% paid to the seller’s broker).
Escrow Fee Paid to the escrow company at closing.
Attorney Fee (if applicable) This is paid to the attorney who represents the seller at the time of closing.
Other Closing Costs Title insurance and document preparation fees are often paid by the seller at closing. Sellers may have to pay more of the closing costs if that is part of the purchase agreement.
Other Negotiated Fees Additional seller concessions such as home warranty fees or points paid towards the buyer’s mortgage interest rate may also be a part of the purchase agreement.
Can Santa Cruz, CA Homebuyers Lower Their Closing Costs?
Of course! If you are a first time homebuyer, it might be a bit overwhelming to go through the list of closing costs, but you should know that most of these fees and charges are not set in stone and that there are a few things you can do to significantly reduce your closing costs. Here are some practical tips for homebuyers like you, so you can get a much better deal as you finalize your home purchase:
1. Shop Around for Lenders and Check Out Their Rates
The rates that are offered by various lending institutions vary, so the best way for you to get the best rate is to take some time to shop around and check out rates from various lenders. The difference in interest rates range from one-eighth percent to a half-percent. This may seem to be a very small difference but, on a $300,000 loan, a half-percent equals to over $1,000 in savings per year. Based on a recent study, a homebuyer can save up to $1,500 by getting one extra rate quote when applying for a home mortgage and $3,000 or more by getting five quotes from different lenders.
2. Request for a Good Faith Estimate (GFE) Form
For first time homebuyers, speaking with two or more lenders can get pretty confusing because they do not follow a specific list. Without a standard list, you are likely to see different terms when comparing quotes from several lenders, making it difficult to assess which lender is offering a better deal. But don’t worry. There is a document called Good Faith Estimate (GFE) form which lists every single fee in a standard manner, and you can request one from each of the lenders you are considering. With this form, you are able to compare all the closing cost fees apples to apples.
3. Review Every Cost with the Lenders
Every homebuyer needs to be able to understand each closing cost fee. This enables you to negotiate with your lender, by either lowering the cost of the fees or taking certain unnecessary fees off the list. So, don’t hesitate to ask the lenders to walk you through the list and explain to you what each fee is all about. Keep in mind that while some of the third party charges are non-negotiable, such as appraisals and credit report fees, other fees are negotiable, such as title insurance, legal fees, and rate lock fees. in addition, there are fees charged by lenders which can be taken out of the list upon your request, such as application fees, underwriting fees, and loan processing fees. So, if you are not familiar with some of the fees, feel free to ask the lenders to explain these to you in detail and request them to take out from your closing costs those fees which seem vague or unnecessary.
4. Let the Lenders Know That You are Evaluating Your Options
Instead of just comparing one lender’s offer against another, you can also let the lenders know that you have more than one option and that you are considering the best rates. If you want to get the best deal, it would be to your advantage to encourage competition among the lenders. Let them know what the others are offering and ask them if they can match it. Knowing how competitive the market is, they are most likely to give you a much better offer.
Buying a home should be an exciting and smooth process, and having a professional, experienced real estate expert by your side can make this happen. If you are planning to move to Santa Cruz, California and are looking to purchase your new home, I can show you your best options in this lovely county and assist you all the way through closing. Feel free to give me a call at (831) 661-5591 or send me an email at [email protected]