California escrow costs (also known as “closing” costs) confuse most buyers and sellers. Let’s make it easier for all buyers and sellers by showing how to understand California escrow costs:
First, we’ll explain the terms used by escrow officers (or title companies);
Second, we’ll explain the types of costs related to the closing of escrow;
Third, an explanation of estimated fees for each item that the seller and buyer pay at the closing; and
Finally, we provide examples of California escrow costs.
Typical California Escrow Costs Terms
California escrow officers prepare a written statement for the buyer and the seller known as the Master Settlement Statement. This lists every credit and debit paid by the buyer and seller. Here is an explanation of the typical escrow statements terms.
Appraisal: A California appraisal company prepares a report providing the home’s “fair market value”.
Attorney’s Fee: If a California lawyer gets involved for the buyer or seller usually reviewing the closing documents.
Bank Wire Fee: Escrow officers send the funds held in escrow by bank wire.
Closing or Escrow Fee: Either a California attorney, a title company, or an escrow company conducts the closing. The escrow company handles all funds for the transaction. In 43 out of the 58 California counties, the buyer and seller each pay 50% of the escrow fee.
Courier/Messenger Fee: Pays the messenger providing transportation of all-important loan documents.
Credit Report: The buyer’s mortgage lender buys a “credit report” from a credit reporting company. It gives a “credit score” (a number rating the risk or “creditworthiness”) of the purchaser based on the buyer’s “credit history”. A higher credit score results in a lower mortgage interest rate.
FHA Mortgage Insurance Premium (UFMIP): If the buyer obtains a Federal Housing Administration (FHA) loan, the buyer pays a UFMIP. It amounts to 1.75% of the mortgage loan. An option exists for the buyer to include the UFMIP in future loan payments rather than upfront.
Flood Zone: An expert determines if the home sits in a “flood zone”. If so, the purchaser must buy “flood insurance” before the closing.
Home Inspection: A California certified home inspector views the home to see if it needs repairs before escrow closes.
Homeowners Association (HOA) Transfer Fee: Purchasing a condominium or a home inside a closed community of homes requires the seller to pay for the HOA membership transfer fee to the purchaser. This assures all dues get paid at the closing.
Homeowners Insurance: The first year of an insurance policy covering damages to the home paid by the buyer.
Homeowner’s Title Insurance Policy: An option to protect the buyer from any challenges to the right of ownership. Sometimes, the seller’s ex-spouse or another person claims part or full ownership to contest the sale.
Lender’s Administration Fee: Also known as an “origination” fee pay for the lender’s administrative costs. Usually, around 1% of the total loan amount. But some mortgages don’t require an origination fee. Read our Note about this before the Conclusion.
Lender’s Title Insurance: The mortgage lender receives an insurance policy protecting the home’s title. Prior liens not paid off at the closing or boundary disputes affect the property’s “clear title”. A lender’s title policy for the mortgage depends upon the mortgage loan amount. Thus, the California escrow costs samples provided below won’t include this item. But you can access the Ticor Title Insurance Company website and use their free Rate Calculator.
Mortgage Application Fee: A fee the buyer pays when applying for a mortgage loan. Also called a mortgage “processing” fee. This includes a “credit check” to see if the buyer qualifies for a loan.
Mortgage Insurance & Property Tax Deposits: Purchasers are often required to pay two months of property taxes and mortgage insurance as a deposit with the escrow agent.
Mortgage Prepaid Interest: Lenders often require prepaying any accrued interest from the closing date to the first mortgage payment date.
Notary: A California certified Notary Public witnesses and certifies the authenticity of signatures on the title deed and other important transaction documents.
Termite Inspection: Covering the cost for a California certified professional inspector looking for “dry rot” and termites. Saves the buyer from expensive repairs of rotten wood or exterminating termites.
Private Mortgage Insurance (PMI): Buyers with less than a 20% down payment of the home’s purchase price must get a PMI policy and pay the first month at the closing.
Property Tax: Lenders require payment at the closing of any property tax due during the first 60 days of ownership. Buyers may calculate their California property tax using this Property Tax Calculator. This calculator includes every county in the country.
Real Estate Commissions: Usually 5% to 6% of the purchase price paid to the listing and selling brokers who divide it.
Reconveyance (Release) Fee: The fee to close the existing loan and release the lender’s lien on the property.
Survey Costs: When a professional survey of the property’s boundaries verifies that the property’s lines and fences do not cross over into adjoining properties.
Title Recording Fee: Filing fee for the title deed filing at the county recorder’s office paid at the closing. Click on this link to find every California County Recorder’s Office.
Title Search: A title company researches the property’s public records to verify no claims challenge the seller’s title and right to sell.
Transfer Tax: A tax paid when the title transfers to the buyer. The county transfer tax is the same throughout the state but some cities also charge a city transfer tax and generally a lot more. The City of LA for example charges city transfer taxes. Transfer tax is generally quoted as $1.10 per thousand while technically correct, but the correct formula is 55 cents per $500. This makes a difference in the calculation when the price isn’t an even thousand number.
Underwriter’s Fee: A mortgage lender’s fee for investigation of the buyer’s qualifications for loan approval.
VA Funds Fee: The Veterans Administration (VA) loan (if applicable) fee is paid at the closing. The buyer may choose to pay this fee upfront or over the life of the loan. Exemptions from this fee exist. Here are links to a list of all fees for VA loans and a list of the costs for a VA funding fee.
California Escrow Costs in Detail
Now that you learned all the terms and explanations of the California escrow closing costs, let’s look at the specific closing costs. These estimate the average fees based on the California Closing Statements examples below.
Appraisal: $495
Bank Wiring: $30
California Transfer Tax: 55 cents per $500
County Recording of Title Transfer: $200
Courier/Messenger Service: $165
Credit Check: $77
Escrow Services: $1,700 to $2,500 depending upon purchase price.
Flood Zone Certification: $15 to $99 depending upon company used.
Homeowner’s Insurance: $470 to $1,500 depending upon purchase price.
Homeowner’s title insurance policy: $1,400 to $2,423 depending upon purchase price.
Loan Origination Fee: $350
Loan Processing: $800
Notary: $200
Property Taxes: 1.25% of purchase price
Real Estate Commission: 5% divided between listing and selling brokers.
Termite Inspection: $75
Title Insurance: $400 to $1,800 depending upon purchase price.
Underwriting Fee: $950
NOTE: The costs for a real estate transaction depend upon the property, final sales price, purchase agreement terms, and conditions between the seller and the buyer. Also, the mortgage loan amount for the buyer adjusts the costs.
Examples of California Escrow Costs
Albert Tapia an escrow officer works for the New Venture Escrow Company in Chula Vista, California for the past 6 years. He spent the last 21 years working in the escrow field. He kindly prepared example Settlement (Closing) Statements for three different San Diego home sales ($450,000 and $650,000 and $950,000).
Sarah McCalmon, Senior Loan Advisor for First California Funding in San Diego, a direct home mortgage lending company since 1985. She also kindly provided us with an Estimated Buyer’s Closing Costs Example for the same home sales prices as above. These are “Closing Costs From a Lender’s Perspective”:
NOTE: Sarah points out an important tip for home buyers.
Make sure to watch out for things like:
Lender Origination Charges on the Fee Sheet is what the lender is charging for the loan and interest rate. Beware of large Origination Charges or Discount Points as a cost for the interest rate chosen.
It’s important to look at the cost details and not be fooled by the illusion of the lowest interest rate offered. The lowest interest rate with the wrong strategy can cost you more than a slightly higher rate with the right strategy. Make sure you review your specific needs with your mortgage advisor.
How To Understand California Escrow Costs – Conclusion
Our “How To Understand California Escrow Costs” taught you about the meaning of unique terms in closing statements. Then, knowing the average fees paid to professionals involved in a California real estate transaction. Finally, looking at typical California escrow closing statements to see what buyers and sellers pay.
We provided you with California escrow costs guidelines, explanations, and examples to help you with selling or buying a home.
Also, a valuable tip from a San Diego mortgage advisor about the pitfalls of Lender Origination Charges. Which saves California home buyers money.
SoCal Lifestyle Realty helps home buyers and sellers to save money with useful blog posts. Also, our friendly Realtors make your sale or home purchase a worthwhile lifestyle experience.
Contact us for all your home sales or purchasing needs in the greater San Diego area.