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September 8th, 2023 at 11:00 am

Buying a home is an incredible milestone in your life and a mighty leap towards a sound financial future. Nothing quite compares to enjoying the benefits of owning your own home. But there’s more to buying a house than the down payment and a monthly payment to your loan provider. Learning more about the various fees when buying a house is key so you feel well-prepared before starting the journey of home buying. 

Some fees involved in buying a house include obvious expenses like the down payment and home insurance, but others are less visible, like appraisal costs, prepaid taxes, various insurance costs, pest inspections, and even notary fees.

To ensure you have complete transparency of what costs go into buying a home, our Southern California REALTORS® have put together a complete list by fee category. Read below for the 10 costs and fees you must factor into your home-buying experience!

Breaking down each fee category

#1 Down payment

The keystone to the cost of buying a home, a down payment is a percentage of your house’s cost that you pay to your loan provider. California homebuyers typically pay about 5.3% of the house’s cost, but a down payment can be anywhere between 3.5% and 20% of the house’s cost.

#2 Earnest money

If you find a home you love, the sellers may ask you to pay what’s called “earnest money.” 

Earnest money is one of the upfront costs in the process and establishes your interest in the home and signals to the sellers that you won’t change your mind at the last minute. While there’s no hard-and-fast rule about the amount of earnest money deposit, it’s typically between 1 to 5% of a home’s asking price—a lot like a security deposit on a rental.

Like a security deposit, the money will come back to you. You’ll get it back in cash or check, or the amount will go toward the purchase of your home—so long as you make good on your promises to buy the house.

#3 Home inspection fee 

Before you finalize your home purchase, it’s always wise to make an appointment with a home inspector. This is a crucial step when buying a house in California.

Home inspectors check the quality of the home to make sure it’s safe to live in. They look for things like lead, asbestos, and termites. The average home inspections fee in California is about $350, but depending on where your new home is, you may have to pay for other inspection costs:

#4 Home appraisal fees

Home appraisals are one of the most financially-savvy things you can do before buying a home. It provides a sound estimate of the value of the home so you can be sure you’re getting your money’s worth. It may also be required by your mortgage lender. 

A single family home appraisal fee typically costs between $300 and $400, depending on the appraisal company you choose and the size of your property.

#5 Closing costs

To close the deal on a house, you will have to pay closing cost fees that cover legal, loan, insurance, and home costs. Closing costs help ensure that the transfer of ownership is legally sound and smooth. A buyer’s closing costs add up to about 2-5% of the house’s purchase price. Take a look at the list below for an overview of exactly what buyer’s closing costs can entail:

You’re required to pay for fees associated with that change, outside of the deed tax.

Then, there are additional costs for title settlement, title insurance binder, and title insurance. Title insurance protects you from financial loss if the ownership of your new home ever comes under question.

In order to use escrow, you are required to pay a fee that will cover the cost of an escrow agent or the attorney who maintains and manages the transaction. 

Depending on the deal you make with the seller, sometimes the seller will pay these fees, sometimes the homebuyer.

The lender will then pay the taxes on your behalf each month. Typically, this is meant to ease the final amount of your property tax bill when it comes due.

#6 State recording fees

Throughout California, County Recorders are required to charge a fee for every real estate instrument, paper, or notice. That means any real estate transaction must be recorded for a fee of $75. 

#7 Private mortgage insurance

Depending on your lender and the type of loan you’ve taken out, you might be required to pay for mortgage insurance. Mortgage insurance is required for all FHA and USDA loans and might be necessary if your down payment is less than 20% of the home’s cost.

Additionally, your insurance company may require you to pay a mortgage insurance premium once you’ve closed on the home. Sometimes you can roll these costs into the home loan amount, but make sure you understand how those costs will affect your monthly mortgage loan payment. 

#8 Agent commissions

An experienced real estate agent will be your best partner in securing the home of your dreams at the price you want. Ideally (and most often), real estate agent commission fees are paid by the seller. 

However, depending on the real estate agent and the seller’s contract, the buyer might be responsible for your agent’s commission fees. Go over your real estate agent’s commission policy carefully before you sign with them. 

Wondering how to find a good real estate agent? With Berkshire Hathaway HomeServices California Properties, you don’t need to worry. Our Southern California real estate agents have a wealth of experience and your best interests in mind.

#9 Home-specific costs and fees

Depending on the type of home you buy, you may have additional costs to factor into the home purchase. 

A warranty will save you money in the long run, and keep your house well maintained. 

#10 Emergency fund 

Whether you’re buying an apartment in an urban center or an updated farmhouse out in the country, every new homeowner should have an emergency fund. 

The costs of buying a house can be draining, but having a fund set aside for miscellaneous fees or in case you need an emergency fix can provide some much-needed cushioning in your finances. 

Influences on fee amounts

  1. Property Location

Naturally, fee amounts can vary based on location since different regions have varying property values and tax rates. This also can play into the amount of your closing costs.

  1. Property value

The value of the property can also affect fees. It’s generally a direct correlation, where higher property value often leads to increased fees, such as the appraisal fee and the loan origination fee.

  1. Loan type

The type of home loan you choose affects your fee structure. If you have a government-backed loans, like the VA loan, there will be specific requirements like funding fees.

  1. Market conditions

The current market conditions in your region can also influence fee negotiations. In a competitive market, some fees might be less negotiable, while in a buyer’s market, there could be more flexibility.

  1. Credit score

The interest rate you’re able to obtain may be influenced by your credit score. A higher credit score might lead to lower fees over the life of the loan.

How to minimize fees 

  1. Shop around for the best mortgage rate

In order to find the best terms for your financial situation, we recommend researching multiple lenders to compare each mortgage rate. Berkshire Hathaway HomeServices California Properties partners with Prosperity Home Mortgage for mortgage lending as they have expertise in purchasing, refinancing, investment properties and vacation homes. 

  1. Negotiate with lenders and service providers

Don’t hesitate to negotiate fees with your mortgage lender or other service providers. In so doing, you might be able to confirm more favorable terms for your needs.

  1. Taking advantage of first-time homebuyer programs

If you are a first-time home buyer, you should consider looking into first-time homebuyer programs. These programs help provide assistance with closing costs and down payments, and can help reduce your financial burden.

Understanding fees on different property types

If you’re in the market for a single-family home, there are other potential fees you should consider as well. Expected property taxes, potential HOA fees, and the overall closing costs are all important factors to keep in mind when thinking about the fees you should expect when buying a home. 

Properties like condos and townhouses often come with unique fees. An example is HOA fees, which cover communal maintenance and amenities.

If you’re interested in multi-unit properties, keep in mind you should also factor in potential rental income and property management fees.

Understanding the costs of buying a home

Buying a home is a huge undertaking, both personally and financially. By educating yourself on the ins and outs of home buying and the costs associated with buying a home, you’ll be able to purchase a home you love with confidence.

With knowledge of each fee category and the factors influencing fee amounts, you’ll be well prepared to minimize and negotiate fees.

The perfect home, the perfect price

Navigating the housing market and all of the costs of home-buying may seem formidable, but you don’t have to do it alone. Our Berkshire Hathaway HomeServices California Properties agents know the Southern California housing market inside-out and can help you understand every cent that goes into buying a home. 

Find a trusted agent that’s right for you today and you’ll be on your way to homeownership in no time! 

Reviewed by Dean Stalter
Dean Stalter is proud to be the Broker of Record for Berkshire Hathaway HomeServices California Properties. He represents the nearly 3,000 agents that make up the company’s presence in Southern California, spanning Santa Barbara down to San Diego. An award-winning real estate veteran, Dean is a great subject matter expert in all things real estate. 

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