What Buyers Should Expect with Closing Costs When buying a home, one of the most confusing aspects of the process is understanding closing costs. Agents often throw around different numbers, leaving buyers to wonder, "How much do I really need?" Here’s the truth: closing costs aren’t a single, fixed number. They’re made up of hard costs, prepaid Interest, taxes, insurance and impounds. Some of these are fairly predictable, while others depend on timing and loan details. Let's break it down. Hard Closing Costs – These are the actual transaction costs: escrow, title, lender fees, recording fees, and appraisal fees. Up to $600,000 purchase → about $5,000 Add $1,000 for every $200,000 more in price $800K → ~$6,000 $1M → ~$7,000 $1.2M → ~$8,000 These are the most stable and easy-to-estimate costs, but vary depending on the escrow and title company. Prepaid Interest Lenders collect Interest upfront from the day of closing until the end of that month. Example: $500,000 loan at 6.5% = $108/day Closing on the 15th = ~15 days = ~$1,620 Closing on the 1st = ~30 days = ~$3,250 This piece varies depending on loan size, and rate. Taxes & Impounds (Where It Gets Complicated) Under 10% down → lenders require impounds (escrow account for taxes/insurance). This means the lender collects months of property taxes upfront. Example: Closing in September may require 9 months of taxes impounded. The seller provides a credit for the months they've already paid (usually 2 - 3 months). Still, buyers need to bring thousands extra upfront. If a buyer opts out of impounds, they’ll instead pay the next tax installment (usually ~6 months). Counties reassess properties after purchase, which means supplemental tax bills will come later. With impounds, the lender makes the adjustments automatically. Without them, the buyer pays directly. Homeowners Insurance Buyers prepay one year of insurance, plus 2 - 3 months of reserves if they have impounds. Example: $4,200/year policy = $4,200 + ~$700 in reserves. Putting It All Together (Example: $1M Home) Purchase Price: $1,000,000 20% Down Closing September 15 Costs Breakdown: Hard closing costs: $7,000 ish Prepaid Interest: $2,160 (~15 days @ $144/day) Taxes: $9,369 (9 months) - $1,800 seller credit = $7,569 Insurance: $4,800 + $800 reserves = $5,600 Total = ~$22,300 (Range: $22 - 24K) But here's the kicker: Only ~$7,000 are true closing costs. The rest (~$15K+) are prepaids and reserves. Without Impounds (Same $1M Example) Taxes: ~6 months = $3,600 - $1,800 seller credit = $1,800 Insurance: $4,800 (no reserves) Total = ~$13 - 15K The Myth of "2.5 - 3% Closing Costs" Many agents say closing costs run 2.5 - 3% of the purchase price. That's misleading, as the lower-priced houses have a higher percentage, and the higher-priced properties will have a much lower rate. Don't Forget Extras Mello Roos / Special Assessments → can add thousands. HOA Dues → may require 1 - 2 months upfront, or in some cases a big fat transfer fee! Quick Visual: $1M Purchase (20% Down) Hard Closing Costs ≈ $7,000 Prepaid Interest ≈ $2,160 Taxes (after credits) ≈ $7,569 Insurance + Reserves ≈ $5,600 ——————————— TOTAL ≈ $22 - 24K Without impounds: ≈ $13 - 15K Final Takeaway for Agents & Buyers When setting expectations, separate "true" closing costs from prepaids: Hard costs (escrow, title, lender, appraisal) → small & fairly predictable. Prepaids/impounds (interest, taxes, insurance) → larger & variable. This way, buyers won't feel blindsided, and agents can confidently set the right expectations from day one. Please let me know if you have any questions or if a client needs my guidance. I’m just a call, text, or email away. 📞 Direct Line: 661-291-2222 – Text OK 📞 Cell: 661-714-6258 – Text OK 📞 Office: 661-260-2970 ext. 2222 – Text OK 📧 Email: Mike@AugustaFinancial.com But wait, there’s more… Interest Rates We have had a nice run over the past 6 days, and we hope that continues. Rates are at a 1-year low, but that could change if there’s some movement in the wrong direction. Loan Programs We do loans on Non-warrantable condos! We offer 12-day escrows for pre-approved buyers, including conventional FHA/Jumbo/Bridge loans. We provide loans in all 50 states, so call me with anything you need. Government loans (FHA/VA/USDA) are in the high 5’s and low 6’s. Conventional loans up to $806,500 are in the low to mid 6s. High-balance loans from $806,501 to $1,209,750 are also in the 6’s and 7’s. Jumbo loans above $1,209,750 are in the 6’s and 7’s. Bank statement loans are available with 10% down again, with larger down payments in the 6’s++. Profit and Loss Statement loans require 20% down - no bank statements needed, only a profit and loss statement! 0 down loans are available in the high 6s, with a minimum credit score of 620, up to $1,300,000. Private Money lenders offer Hard Money Loans with 35% down. No-Ratio Loans require a 30% down payment. DSCR (Debt Service Coverage Ratio) loans are available with as little as 15% down. Bridge Loans typically have an interest rate of 7.99% with limited fees, helping you get where you need to go! 3/2/1 Buydowns, 2/1 Buydowns, and 1/0 Buydowns are available at great starting rates! Please note that interest rates are subject to change without notice, and the information above reflects LA County Loan Limits. **Good News for Condos:** Vista Del Canon – No Longer Naughty! **Bad News for Condos*** Nothing new! YAY! CONDO HELP!!! If you have a listing or a buyer interested in a specific condo, and you’re unsure whether the condo is warrantable or Non-warrantable, please call me, and we can look up Fannie’s list in real time. I have already done that on three condos today, and my list was accurate on all 3. We don’t know when something has changed, and it would be impossible to track everything day by day, but we don’t mind looking up a few each day! The full state of California’s naughty list has been added to: MikeMeena.com! See the link below: https://mikemeena.com/non-warrantable-condos/ Let me know if you hear anything new about condos or townhouses. I am available every day if you need anything. 📞 Direct Line: 661-291-2222 – Text OK 📞 Cell: 661-714-6258 – Text OK 📞 Office: 661-260-2970 ext. 2222 – Text OK 📧 Email: Mike@AugustaFinancial.com Have a great day and an even better tomorrow! Please call me when you have a client who needs to borrow! Mike Meena President | Loan Officer Click to Call or Text: (661) 714-6258 This entry has 0 replies Comments are closed.
