Closing costs in California

Wondering how much closing costs are in California? Usually, closing costs are between 1% and 3% of the purchase price, which are among the highest in all of the United States. You can avoid some closing costs by paying in cash. If you require financing, you should expect to pay several thousand dollars in closing costs.

Average closing costs in California

Closing costs are the administrative and legal fees a property buyer will incur when finalizing a home sale. Property insurance, prepaid utility bills and title insurance are a few of the expenses that are typically included in closing costs. It’s important to estimate closing costs because they can cost you several thousand dollars.

The average closing cost in California is US$6,537, including taxes, as reported by ClosingCorp. This is approximately 1% to 3% of the purchase price. The average cost of a home in California ranges between US$600,000 and US$700,000.

Other fees

Common closing costs in California include escrow fees, title insurance, appraisal fees, underwriting fees, notary fees, recording fees, transfer taxes, credit report fees, mortgage origination fees, processing fees, property taxes, hazard insurance and homeowners association dues. These costs can be challenging to estimate, but make sure that you set aside some funds to pay for them.

Down payment and exchange rates

In Orange County, the down payment is usually between 30% and 40% for foreign buyers. In other parts of California, the required down payment is usually at least 20% for personal property. If you’re purchasing an investment property that will be rented out most of the time, your down payment will likely be closer to 40%.

Your down payment will probably be payable in US dollars, so be mindful of the exchange rates and the additional cost that comes with it.

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Who pays closing costs in California?

You might be wondering how much closing costs in California are for the buyer and seller. In California, buyers and sellers usually split the cost, but the buyer absorbs most of it. A breakdown of who typically pays for what can be found below.

For the buyer

For the seller

Who pays for title insurance in California?

Payment of title insurance can be negotiated between the buyer and the seller. However, in Southern California, the cost is usually paid for by the seller. In Northern California, the buyer usually pays.

How do Canadians get a mortgage for a US property?

Many Canadian lenders do not offer mortgages for US real estate purchases since they usually don’t have legal jurisdiction in the US. The only exception is Canadian lenders that also operate in the US. Before applying with a Canadian lender, be sure to understand the lender’s jurisdiction and whether the state where you want to make a purchase is included.

If you can’t find a Canadian lender that operates in the state you want, you can always work with a local US lender. Finding a creditor who will work with you won’t be as challenging as you think. There are many Canadian snowbirds who spend the winter months in a summer home in the US.

What to know about buying a condo or co-op in California

Condos

California’s housing market is one of the hottest in the US due to low supply and high demand. The market moves extremely fast because of this. If you don’t move as quickly as the market, you can lose deals and get knocked out of preapproved ranges.

Like anywhere else, you will need to pay condo fees in California. These are the costs to maintain the property and amenities. You will also need to pay homeowner association fees, which can fluctuate a lot, putting pressure on your finances. Furthermore, individual homeowners have the power to bring a lawsuit against the homeowners association. This can severely impact an owner’s ability to refinance or sell their condo in the future.

Co-ops

When you purchase a co-op, you actually aren’t purchasing real estate. Rather, you’re purchasing shares in a corporation that owns the property you will live in. All of the residents of the property are shareholders. The corporation has a board of directors and is typically viewed as a not-for-profit organization. Similarly to condos, residents of a co-op are required to pay operating costs to maintain the property.

Because you’re not purchasing real estate, you would not obtain a mortgage to buy a co-op. Instead, you would finance the purchase with a regular loan. This can be more challenging to qualify for because of the high loan amount and lack of security.

Bottom line

Closing costs in California are around US$6,457 or 2% to 3% of the purchase price. California is one of the more expensive states for Canadian snowbirds to buy real estate, so be sure to set some funds aside for closing costs, most of which the buyer is responsible for.

Frequently asked questions

• How do California's closing costs compare to other states?

  Average closing costs in the US are US$5,749, including taxes. California’s closing costs are US$6,457, including taxes. Since California’s closing costs are above the national average, it is considered a pricey state. In fact, California’s closing costs are the sixth highest in the country behind DC, New York, Maryland, Delaware and Pennsylvania. Neighbouring states such as Arizona and Oregon have cheaper closing costs.

• What are Mello-Roos taxes?

  Mello-Roos taxes are used to fund improvements to local infrastructure under the Community Facilities Act. Potential improvements could include building or repairing streets, sewers and sanitation systems as well as providing funds for police protection and the maintenance of public amenities.

  Whether you have to pay Mello-Roos taxes depends on where the property is located. Ask whether your real estate is located in a Mello-Roos Community Facilities District. If it is, ask about expected special tax payments and factor the cost into your budget.

• Should I get earthquake insurance?

  California is a state that is prone to earthquakes that can significantly damage your property. Most homeowners insurance policies do not cover earthquakes, but the insurance company must offer to sell you an optional policy to cover earthquakes. You usually have 30 days to accept the offer.