What are Closing Costs?
Closing costs are the fees that are paid by the buyer and the seller during the settlement, or closing, of a real estate transaction. At this stage, both parties sign the final ownership and insurance paperwork, and the homebuyer becomes the legal owner of the house. While generally, most of the closing costs are shouldered by the buyer, there are instances when the agreement between the two leads to the seller covering some of the buyer’s closing costs. Yes, the good news for homebuyers is, closing costs are not set in stone, so it is best for homebuyers to work with a real estate professional and take the time to learn more about closing costs so that they are able to negotiate towards a more favorable deal with the seller.
Average Closing Costs in Chico, California
In general, the closing costs of homebuyers in Chico, CA range from 2% to 5% of the purchase price, which is approximately $3,000 to $7,500 on a $150,000 home. Closing costs in California can vary, but in general, California homeowners can expect to pay anywhere from 6 to 10 percent of their home’s selling price to close the deal. The seller, on the other hand, pays the listing agent on average 3% of the total home sale, as well as the buyer’s agent fees. While this fee is optional by law, the generally acceptable rate is 2.5% to 3% commission.
Breakdown of Closing Costs in Chico, CA
- Origination Charges and Points
- Credit Report Fee
- Title Insurance Premiums
- Government Charges to Record the Loan
- State and Local Transfer Taxes in Chico, California
- Hazard Insurance
- Initial Escrow Balances for Property Taxes and Insurance Paid at Closing
- Listing Agent Commission
- For Sale by Owner (FSBO) Fees
- Buyer’s Agent Commission
- Escrow Fees
- Title Search Fees
- Mortgage Balance Payoff
- Closing Cost Concessions
- City or County Transfer Fees
- Miscellaneous Seller Closing Costs in California
- Notary Fees
- Homeowners Association (HOA) Transfer Fee
- Cost of Home Warranty
- Termite Inspection Fee
- Natural Hazard Disclosure Report
- Lien Release Document Fee
Tips on How a Chico, CA Homebuyer Can Lower Their Closing Costs
Closing costs can seem complicated and overwhelming, especially to first time homebuyers. However, keep in mind that these are not set in stone. A lot of the fees and charges can be reduced or removed from your list. This is why it pays to do your own research and work with a qualified and experienced real estate professional, so you can make the most out of your home purchase deal. Here are a few practical tips on how you can lower your closing costs.
1. Choose a Brokerage Firm That Offers a Rebate on Broker’s Commission
While most homebuyers negotiate to lower their broker’s fees, there is one more thing that you can do to further lower your broker-related closing costs. Look for a brokerage firm that offers a rebate on its commission in exchange for doing some of the legwork yourself, without the help or presence of a broker. This would mean going through property listings, viewing virtual tours, or attending open houses by yourself and, in return, the firm will give you a percentage of the commission that is paid to the broker at closing.
2. Be Sure to Check the Fees and Charges in Your Closing Costs List
Not all homebuyers take the time to check their list of closing costs, but going through each of the items listed there and asking the lenders what they are about is what you need to do if you want to get the best deal out of your home purchase. Having sufficient information will enable you to negotiate into reducing or taking out certain fees that are vague or unnecessary. And although you can do your own research online, it is best to get guidance from an expert.
3. Consider Purchasing a Resale Home Instead of a Brand New Property
Buying a new home may be the typical choice of most homebuyers, but a brand new property would usually have a higher purchase price and higher closing costs. So, you might want to consider buying a resale home instead. There may be a few things that you may need to do, such as updating the interior and making repairs, but the overall costs for doing these would still be lower compared to the total amount that you would have to pay for buying a new house which will involve higher closing costs. And one more advantage of buying a resale property is, you can rest assured that the house has been “tried and tested” and that major issues have been addressed by the previous owner.
4. Don’t Limit Yourself to Getting a Quote from Just One Lender
According to a recent study, homebuyers can save as much as $1,500 by getting a second quote and $3,000 or more by getting quotes from five lenders. By shopping around for lenders, you can save one-eighth percent to a half-percent of your loan. While these percentages may seem small, they actually translate to significant savings. For instance, a half-percent interest on a $500,000 loan amounts to $2,500 of annual savings.
5. Set Your Closing Date Towards the End of the Month
And lastly, another way a homebuyer can save on closing costs, particularly prepaid daily insurance charges, is to schedule the settlement or closing date towards the end of the month. This decreases the number of days between the settlement and the succeeding month, and so your cash outlay for prepaid or “per diem” interest will be lower. You can compute for your savings by multiplying the loan amount by your interest rate then dividing the result by 365 to get your daily interest charge. Next, multiply that amount by the number of days left in the month. The result will be the amount that you will need to pay at closing. In short, the lesser the number of days, the lower your interest will be.
If you have plans of buying a home in Chico, CA, I can show you the best options in the area that are available for you. Just give me a call at 530-570-5822 or email me at [email protected] to schedule an appointment!