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What is included in Closing costs | Home Buying in San Jose CA - YouTube
Channel: Theresa Wellman - Realtor, Homeowner Experience
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Wait closing costs are how much? No,
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I don't want you to go there.
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I don't want you to be getting to buy
a home and then be shocked at all these
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surprises. So today we're going to
talk about what are closing costs,
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what they are and what to
expect. So you can be prepared.
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Hi, I'm Theresa Wellman with homeowner
experience.com, your local San Jose,
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California realtor.
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And today we're talking about expectations
when buying a home so that you can be
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prepared.
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We're going to specifically cover closing
costs and all the details that go into
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it. So let's jump right in first.
What really is a closing cost?
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Technically a closing cost is any
charge or fee that you will pay
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when buying a home.
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Now sellers have closing costs
and buyers have closing costs,
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but today we're going to focus
just on buyer closing costs.
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So what is really included
in closing costs? Well,
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technically there's two areas and I
see a lot of buyers get these confused.
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There is cash to close. What you might
hear a lot of lenders talk about,
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and there's closing costs.
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Now cash to close is a larger sum of
money because that includes your down
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payment and your closing costs and closing
costs are just those extra fees that
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you're going to have to pay upfront
that maybe you aren't thinking above and
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beyond that down payment.
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So I'm going to go through an actual
net sheet for you here to point out
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specifically, but just
on a really high level,
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the closing cost that you're going to
have to pay are related to lender fees,
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title, and escrow fees,
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maybe transfer fees for an HOA or
the city that the property is in.
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Also something to consider are any
mortgage insurance premiums or home
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insurance premiums that
must be paid upfront.
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And then there's going to
be interest on your loan.
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We'll get more into that
in a little bit. Oh,
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and one big one could be
prorated property taxes.
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So we're definitely
talk about that as well.
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So let's jump right into the computer
and look at a net sheet and talk about
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some of those fees that you could expect.
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This is an actual net sheet that I have
from a recent buyer sale that happened.
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And this buyer had a lot of
questions, which inspired this video.
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So I want to make sure to
go through this thoroughly.
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So any future buyers also know about this,
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and they know that I am happy to
discuss these details for you upfront.
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So you know what to expect. Here
we are with an actual net sheet,
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from a transaction that closed with
the buyer just a little bit ago,
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you see it was at the end of August.
So this is a property in San Jose.
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So I want to go through the common fees
that a buyer might see when purchasing a
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home in San Jose.
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So this first line is the green line
is going to be prorated loan interest,
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and also insurance premiums for the
year. So as you can see this loan,
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this transaction closed on
August 17th or August 18th. Um,
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it was the settlement date actually.
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So they're going to pay interest from
the 17th when the loan funds the day
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before escrow until
the first of the month.
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So that is 15 days of interest that
will need it to be paid upfront. Now,
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if you close at the end of the month,
you're not really gonna have any of this.
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Um, or maybe you're going to
have a full month ahead of time,
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depending on how the bank does
the payments with your loan.
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But typically there's going
to be some interest here,
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depending on when, in
the month that you close.
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And then if we look down
here at tacit insurance,
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this one was estimated still
on this estimated net sheet,
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but you're going to pay the year's
premium likely ahead of time because the
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lender likely wants to see that the home
is set up to be insured for at least
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that first year. And then they will
continue to monitor. As you decide,
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after that, whether you want to renew
every quarter, every six months,
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every year, however you do it.
Now, let's look at the yellow fees.
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Now the yellow fees are going to
be loan or lender fees specific to
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getting your loan.
There's a preparation fee.
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There's going to be appraisal and credit
report fees that are necessary for
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getting your credit report and
getting the appraisal on the house.
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Then there's a processing fee,
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which it takes for the bank to
get it through all the system.
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And then there could be also
little miscellaneous fees. Um,
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this property was in a flood zone, so
it needed a flood certification fee.
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The insurance monitoring
is what I was saying.
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They're checking to make sure you've
got the insurance on the property and
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making sure it stays active. And then I'm,
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I'm not sure what the tax service fee is,
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but that's a pretty standard fee for
lenders. Now let's look at the blue line.
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The blue line is the pro
rated real estate taxes.
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So taxes or property taxes
are gathered every six
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months. So July 1st or
the end of the year.
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And then if you close in
the beginning of the year,
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taxes are collected from
January 1st until June 30th.
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So depending when you close and
when the taxes were collected,
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either you are going to own the seller.
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If the seller already had to pay for them,
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or the seller is going to
owe you depending on when
the taxes were due and paid.
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So there could be some
time here, definitely talk
with your agent about that,
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to understand exactly what that
number will work out to be,
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but it is real estate taxes
you would have normally paid,
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but this is going to be
at the seller's old rate.
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And you're going to get a supplemental
tax bill to make up that difference at
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your new tax rate as well. Now let's look
at the purple lines here, the purple,
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our escrow and processing
fees, such as courier, notary,
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the recording fees and
just general escrow fees.
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Now these fees sometimes
fluctuate based on the, Oh,
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I'm sorry. They're pretty flat
fees. These fees in the purple.
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The one I want to point out is
this orange one, the title fee.
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Now this is a loan policy, a
title insurance for your loan,
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and this is going to vary by the
purchase price or the loan amount.
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So that number will fluctuate depending
on the size of property that you are
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purchasing.
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And then the last thing to point out
that is only you're going to find in San
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Jose is a city transfer tax.
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So this is a large tax that is gathered.
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It is typically split 50 50 between
the buyer and seller seller.
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So this is the 50% buyer
piece. So this was a 1.4,
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$5 million purchase of a property.
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And they're spending 2390 on the transfer
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tax. So it's $3 and 30 cents per thousand,
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under 2 million above 2 million.
That number goes up quite a bit.
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So definitely touch base
with your real estate agent,
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to understand that specific
number in more detail. Now,
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your EMD or your earnest money deposit
and your down payment again are not part
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of the closing costs and they need
to pay paid in two different phases.
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So another common question I really
get from buyers is when do I pay these
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closing costs? Or when do I pay
my down payment or earnest money?
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So let's talk a little bit about the
timing and then we'll get into the
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specifics.
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So your earnest money deposit is going
to be written up with the contract.
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So typically that's going to be deposited
into the escrow company one to three
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days after you have a ratified purchase
contract between you and the seller,
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the remaining balance of your down
payment is going to be due a couple
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days before close of escrow.
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And I save remaining balance because
your earnest money deposit, yes,
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it does go towards your down payment.
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Another question I've seen online a lot
is earnest money legally required. Yes,
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it is because it's a
legally binding contract.
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Let me point out the
contract to right here.
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It is part of the collateral that
you're going to do your job to close the
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escrow.
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So the seller wants to see some money
laid up front and held in that third party
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escrow company to make sure that you're
going to follow through on their tasks
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and they will follow
through on their tasks.
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Now let's talk a little bit about other
related questions to closing costs and
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down payments. So can your closing costs
be included in the loan? Well, I mean,
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I have not seen that be the case for a
home purchase, definitely in a refinance,
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you will see lenders offer that the
closing costs be rolled into it.
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But the reason for that is you have
a lot of equity when you're usually
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refinancing.
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So you're actually eating up a little
of your equity to make that loan amount
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bigger for a home purchase that doesn't
work because you've already got an
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agreed upon amount with the
bank, whether it's 5%, 10%,
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20% or more to put down on
the purchase of the property.
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So closing costs are on top of that,
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but some lenders will offer
credit to help offset that.
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And so it kind of feels
like it's rolled into loan,
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but really the lender is
offering a credit. Now,
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as we're going through and talking about
all these different details with the
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home purchase, I also get
a lot of questions about,
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are there other steps of the house
purchase that I should be aware of?
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Do you have a checklist? How can you
help me pace through these steps? Well,
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you know what I got you covered on that?
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Definitely check out the link above it's
my home buyer's checklist that has 12
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steps to buying a home. I really
recommend you watch that video next.
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