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What are Buyers' Closing Costs?

What are Closing Costs?

Whenever a house is bought or sold, there are always closing costs associated with the transaction. This is true for both Buyers and Sellers. However this article will discuss buyers' closing costs.

Closing costs consist of additional charges that are incurred by the buyer. These costs are generally about 1.5% of the total cost of the property overall. So if you are looking at a $1M home, the closing costs are generally approximately $10k plus or minus depending on several factors..

There are two types of closing costs: Non-Recurring and Recurring.

** Non-recurring closing costs are the one-time fees that a buyer pays only at the time of purchase and do not get repeated after the close of escrow.

  • Escrow fees: usually between $1.85 - $2.25 per $1,000 plus a base fee of approx $250, depending on the escrow company. For example: A 1M dollar home would be ($1.85 x 1000 = $1850 )

  • Loan associated fees

    • Appraisal fee: between $350-750

    • Underwriting fee, Processing fees, Mortgage origination fees:based on your loan amount - check with your lender

    • Credit report fees: $30-50

  • Notary fee: Your loan loan documents will need to be notarized either by the escrow officer/notary or by a mobile notary who can come to your house or workplace ($200- 400).

  • Title Insurance fee: Traditionally the seller pays for your title ins. policy and the buyer pays for the lender’s ins. policy (costs vary based on property price – $1000 and up)

  • Recording fee: Set by the city to record the sale of the property – $75 to $100

  • Inspections fees: “A la carte” depending on the type of property you are buying ie: General inspect (approx. $350-$500), chimney inspect (approx $375), Sewer line inspect (approx. $375), foundation, roof, electrical, plumbing (approx $100 ea).

** Recurring closing costs: These costs will repeat after the close of escrow and some

will also be prorated and paid at the time of closing.

  • Prepaid interest: Due at closing for any daily interests that accrue on your loan between the date you close escrow and the period covered by your first monthly mortgage payment

  • Property taxes: Paid this twice a year or you can work it into your monthly mortgage payment (impound account). A prorated portion will be paid at the close of escrow.

  • Property insurance: A prorated portion will be paid at the close of escrow (Prices vary depending on size, location and other factors).

  • HOA dues: A prorated portion will be paid at the close of escrow

How can a buyer mitigate these closing costs?

When a buyer conducts their inspections during their due diligence period, it is not uncommon to find things around the home that are in need of replacement, repair or upgrading. Unless these items were previously disclosed to the buyer before making the offer, it is common practice to negotiate some credits from the seller to compensate for the findings (an old A/C unit, a broken sewer line or a roof that is nearing the end of its life, termite damage or a chimney that needs repairing).

At the end of the inspection period, the buyer will sit down with their Realtor and based on professional quotes obtained during the inspection period, they will establish a dollar amount that will be submitted to the seller for a credit.

The negotiated credit can then be applied towards paying some of the above closing costs (it will also need to be approved by the lender).

If this amount called a “credit”, is more than the total amount of the closing costs, then sometimes a buyer may ask for the purchase price to be reduced or in some cases, escrow can issue a pre-paid check to a 3rd party vendors such as a Termite company (ie for fumigation for example) for repairs that will done after the close of escrow.

These are some of the closing costs that homebuyers in Los Angeles may experience. Depending on your own home buying situation, you may have additional costs. If you are buying a house all-cash (good for you) then the mortgage and appraisal fees will not apply!


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