California isn’t just home to the world’s entertainment capital, it’s now also the world’s fifth-largest economy. The state’s gross domestic product (GDP) grew well above $2.7 billion between 2016 and 2017, outpacing the United Kingdom, whose output dropped during that same period. But that growth isn’t necessarily translated to the state’s housing market. California is experiencing shrinking inventory, a drop in home sales and rising home values. As of August 2018, Zillow listed the state’s median home value at $539,400, well above the national average of $216,700. The website said it expects home values to continue rising another 8.6% over the next year. 

In most parts of California, it isn't just high home prices that homebuyers have to battle. Closing costs can often add to their shock as well. To finalize the deal, homebuyers must cover many costs and fees, including lender fees, attorney fees, recording fees, agent commissions, real estate taxes, mortgage insurance, survey costs and an appraisal. Closing costs vary among states, but they also vary among lenders and markets, depending on the home price. In comparing closing costs, it helps to know what closing costs to expect and how much they cost. A good way to start is by learning what the average California homebuyer pays in order to cover those costs.

Average Closing Costs in California

In California, the average origination fee charged by lenders is $1,030. The average fees charged by third parties involved in the transaction are $1,196, which brings the total average closing costs to $2,225. This is well above the national average of $2,084. New York, Hawaii, and Delaware have the highest closing costs, totaling more than $2,300 each. Oklahoma, Wisconsin and South Dakota are among the lowest, with less than $1,850 in closing costs.

On average, borrowers pay the lender $58 for document preparation, $920 for an origination fee and $76 for tax services. Third-party charges include $461 for an appraisal, $639 for closing or settlement, $25 for credit reports, $11 for flood certification, $111 for postage or couriers and $500 for a survey. These average costs do not necessarily add up to the total averages because some lenders may not charge for some of the costs.

Borrowers are provided with a good faith estimate by the lender, which lists all of the costs and the fees charged. Lender origination fees should be fixed, while third-party fees may vary by as much as 10%. Within three business days before the closing of the loan, the lender should provide a closing disclosure statement outlining all the fees. This should be compared with a good faith estimate to see if there are any variances. If there are variances, then request an explanation for each variance.

What Goes Into California's Closing Costs

In California, closing costs can vary based on the lender, where the home is located and the type of property. The following closing costs are typical for most mortgage loans in California.

Lenders do a hard pull on a homebuyer's credit report for a fee to review credit history and analysis of credit ratios.

The loan origination fee covers the lender's charge for the cost of processing the loan paperwork.

Although inspections are not required for conventional loans, a lender may request a pest inspection if there is any indication of a possible problem in the appraisal.

In most cases, a surveyor is hired by the lender to verify property lines.

Lenders usually require an appraisal to verify the property value. A separate fee is paid to the appraiser to complete the assessment. 

Postage and courier service fess generally covers the cost of shipping documents between the borrower, the lender and the title company. This is one fee that can usually be negotiated down.

Although California does not require an attorney be used in the closing process, borrowers are advised to hire an attorney in order to ensure that their interests are protected. This typically results in a settlement or closing fee paid to the attorney. 

Seller’s Closing Costs

Sellers are responsible for their own set of closing costs, which can amount to about 1% of the sale price. Sellers’ costs vary widely because some may not be required and others, such as sales commissions, can be negotiated. Costs can include fees paid to bring the property within code compliance, home inspections, a home warranty, sales commissions, property taxes, title insurance and escrow fees.

The Bottom Line

At an average of $2,225, California is among the top ten most expensive states when it comes to closing costs. Rising values and prices of homes, coupled with a shrinking inventory in the state only make the home buying process even more stressful. Remember to shop around and negotiate any fees before you sign on the bottom line. 

Colorado (CO): Average Closing Costs

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