How much extra money will it take, beyond the down payment, to purchase a home in San Jose or Santa Clara County? The answer varies, depending on what, where, and how you buy. Today I’ll offer some general information on home buyer‘s closing costs in Silicon Valley.
Just need a rule of thumb on the costs? A generalization, a really rough estimate is two percent of the purchase price, but your actual figure could be substantially more or less, depending on many factors. If your loan is a “zero point” product and if you do not need to pay for inspections, your costs should be between .5% and 1% of your purchase price. If you have an FHA backed loan or for credit reasons decide to buy down your interest rate with points, that will be expensive. If you buy a home that needs a lot of inspections and specialized ones to boot (structural engineering report), your costs will be higher. And, of course, if you buy a fixer upper “As Is”, your costs will be higher still.
What makes residential real estate closing costs vary so much?
- The City of San Jose charges a transfer tax which is normally split 50/50 between buyer and seller. The cost is $1.165 per thousand each for buyer and seller (so for a $600,000 purchase price, $990 each)
- Short sales and bank owned properties (there are still a few of them around) usually do not have pre-sale inspections available, so you will need to pay for all inspections (this is often a good idea anyway, but at least if the seller has some inspections available you can know whether you’re seriously interested in the property before spending hundreds of dollars on those reports)
- Condominiums and Townhomes will have HOA (Home Owner Association) transfer fees that you’ll have to pay when buying (they also charge the seller hundreds to provide you with a complete packet of documents on the minutes, budget, articles of incorporation, bylaws, newsletters etc.). Often this is about $300.
- Some neighborhoods may have extra bonds and assessments that residents have voted in, and these raise your property tax bill.
- Loan fees can range from a few hundred dollars to several thousand, depending on the mortgage program you choose. Points paid at close of escrow may be a worthwhile strategy for you – discuss it with your lender and your tax professional!
- Are you buying a home “As Is”? If so, expect repairs to be needed even if the home “looks great”. It is not untypical for a house to require about 2% of the home value in upgrades and fixes, so if buying “as is”, factor that in, especially if there are no pre-sale inspections!
What do inspections cost?
Roof inspections run between about $80 to $120 for most houses, but larger homes or those with special conditions may cost more.
Chimney inspections usually cost close to $100 too. Naturally the charge will be higher for more than one fireplace or chimney per home.
Property or house inspections are less expensive when the home is smaller, newer, and there’s no crawl space (usually). A tiny condo might be a couple or three hundred dollars. A large house of 5,000 square feet to 10,000 SF will be far more expensive, perhaps over a thousand dollars. Typical house? About $450.
Pest inspections likewise are less expensive on smaller, younger properties and more expensive on larger, older ones. Typical fee is appx $250.
Many or perhaps most inspection companies have two prices, with a good discount is usually offered if you pay the day that the inspection is performed. Either way, if you order the inspection, you are obligated to pay, even if you later decide to not complete the purchase of the home.
For most buyers of single family houses, budget in about a thousand dollars for inspections. You may need to do other inspections too, though, if something is uncovered in the home inspection. For instance, you may need a heating specialist to look at the furnace, an electrician to estimate repairing safety issues, or other specialists. If you need a foundating or soils expert, it will be very costly. If you are in a remote area of San Jose, you may need well water tested, a septic tank tested, or other atypical inspections and you’ll need to budget in more for these.
What are other typical closing costs for home buyers?
Your loan fees you’ll need to obtain from your lender. The appraisal fee is usually paid upfront and the cost is based on the size of the home, normally a few hundred dollars ($300 to $500 is the typical range, but again it varies).
The title company will charge a notary fee ($10 per signature on notarized documents), a fee for printing your loan papers (if they come by email, which is normal now, often about $300), a fee for the lender’s policy of title insurance (based on the purchase price of your home, often more than a thousand dollars), and possibly other misc fees to cover their paperwork.
Most lenders are looking for 20% down, and you will need to also have money set aside for closing costs (about 2% for many buyers) and finally also “reserves”. The bank wants to know that you have money “just in case”. Each lender will have a different guideline but some are looking for as much as six months of reserves.
That said, FHA loans are available up to $729,950 right now and they only require 3.5% down, so definitely talk to your lender if you are not in the 20% down category! The interest rates on FHA loans are very competitive. Purchases using these programs have more red tape and are more work all around, but it’s a great opportunity to get into a home when there’s not a lot of downpayment money to go around.
For “ballpark” purposes, think 2% of purchase price, but please understand that your costs could be much higher or lower, depending all of the factors listed above.
Please call or email me to discuss this further!