South Bay Buyer Closing Costs: What They Cover and How to Plan for Them

South Bay buyers should plan for closing costs on top of the down payment, typically a few percent of the purchase price depending on the loan, the price and how much is prepaid. They fall into four buckets: lender fees, title and escrow, prepaid taxes and insurance, and third-party services such as the appraisal. Your lender's Loan Estimate is the best early guide, and your Closing Disclosure shows the final numbers at least three business days before closing.

1. Lender and loan costs

These depend on your loan program and the lender:

• Origination, underwriting and processing fees.
• Discount points, if you choose to buy down your rate. Each point is 1% of the loan amount.
• Credit report and verification fees.
• Mortgage insurance: an upfront premium for FHA loans, a funding fee for most VA loans, or the first month's premium for some conventional loans with private mortgage insurance.

Lender fees are where comparison shopping pays off. Request Loan Estimates from at least two or three lenders on the same day and compare Section A (origination charges) and the rate side by side.

2. Title, escrow and recording

In Los Angeles County, these usually include:

• Escrow fee. The neutral escrow holder manages documents and funds.
• Lender's title insurance policy, required by the lender. Who pays for the owner's policy varies by local custom and the contract, so check your purchase agreement.
• Recording fees to record the deed and deed of trust with the county.
• Notary and courier fees.

California's SB 2 housing fee adds $75 per recorded document, capped at $225 per transaction. Documents recorded in connection with a transfer subject to documentary transfer tax are generally exempt.

The documentary transfer tax in Los Angeles County is $1.10 per $1,000 of value, and some cities, including Redondo Beach, add their own city tax. Who pays it is negotiable and set in the contract; in much of the county, the seller customarily pays.

3. Prepaid property taxes and insurance

• Homeowners insurance. Lenders usually require the first year's premium paid at or before closing. In coastal California, get quotes early; availability and price can vary widely by property.
• Property tax proration. You'll reimburse or be credited for the seller's taxes depending on what's been paid for the current period.
• Impound account. If your loan has an escrow (impound) account, the lender collects a cushion of several months of taxes and insurance at closing.
• Prepaid interest from your closing date to the end of the month.

Also plan for the supplemental property tax bill. Because your purchase resets the assessed value under Proposition 13, the county sends a supplemental bill for the difference, usually a few months after closing. It's typically not paid from the impound account.

My take: Don't stop budgeting at the Closing Disclosure. Set aside cash for the supplemental tax bill and for the first few months of ownership, when small repairs and move-in costs show up. Buyers who plan for that settle in with far less stress.

4. Inspections and the appraisal

• Appraisal, ordered by the lender and paid by the buyer.
• Home inspection and any specialist inspections (sewer lateral, roof, chimney, foundation).
• Wood-destroying pest inspection; who pays for it and for repairs is negotiated in the contract.
• HOA documents and transfer fees for condos and townhomes.

Some of these are paid upfront during escrow, not at closing, so have cash available early.

Can the seller pay some of my closing costs?

Yes, through a seller credit negotiated in your offer, but loan programs cap how much:

• Conventional loans (primary residence): up to 3% of the price with less than 10% down, 6% with 10% to 25% down, and 9% with more than 25% down.
• FHA loans: up to 6% of the price.
• VA loans: seller concessions are capped at 4% of the home's value, not counting normal closing costs.

A credit can't exceed your actual closing costs. In a balanced market, asking for a credit instead of a lower price can preserve your cash; in a competitive one, it can weaken your offer.

How to plan

1. Get a Loan Estimate early and compare lenders.
2. Ask your agent for a cost worksheet that includes title, escrow, transfer taxes and inspections.
3. Shop homeowners insurance before you're in escrow if possible.
4. Keep reserves for the supplemental tax bill and move-in costs.
5. Wire funds safely. Confirm wiring instructions by calling escrow at a number you already know.

Ready to start? Search South Bay homes or read about how I work with buyers.

Sources: Consumer Financial Protection Bureau (Loan Estimate and Closing Disclosure); California Government Code §27388.1 (SB 2 recording fee); Los Angeles County Registrar-Recorder/County Clerk (documentary transfer tax); Fannie Mae Selling Guide (interested party contributions); HUD (FHA seller concessions); U.S. Department of Veterans Affairs (VA concessions); California State Board of Equalization (supplemental assessments).

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Robert Neff, Ph.D., REALTOR® | CA DRE #02442812 | eXp Kaminsky Real Estate Group, Corporate DRE #01878277 | (424) 999-7761. Equal Housing Opportunity. This article is general information, not legal, tax or financial advice. Rules and market conditions change. Information deemed reliable but not guaranteed.