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Here’s what most real estate professionals don’t tell you: Buying a home almost always involves more money out of your pocket than just your down payment.

Imagine this scenario: You just found your dream home! You’ve been saving up for months (or even years) for your down payment. The dream home seems like it’s within your budget. You quickly get out your mortgage calculator and run the numbers— as long as you put down all your cash as your downpayment, you can afford the monthly payment!

But wait just one minute.  You didn’t factor in closing costs. Closing costs are additional expenses that you pay in addition to the purchase price.

Oftentimes, when buying a home, there are other service providers who need to be paid.  These services are important and include things such as inspections, escrow fees, lender fees, and other county or city fees.

How Much Will My Closing Costs Be?

In general, the average closing costs for buyers in Sacramento and throughout California tend to fall within two to four percent (2 – 4%) of the purchase price. Most of these fees are charged by the lender and include loan origination fees.

For example, the closing costs for a standard $500,000 home could cost anywhere between $10,000 – $20,000. In reality, that $500,000 ends up costing you $510,000-$520,000.

Closing costs are typically divided into two categories: Non-recurring and recurring closing costs. Now, let’s take a look at how these two categories differ.

Non-Recurring Closing Costs for Buyers

When buyers pay closing costs that are “non-recurring”, they are only paying these fees one time in order to successfully close on the house.  This includes:

  • Title Insurance Premiums / Policies
  • Notary fees
  • Home Inspections
  • Natural Hazard Disclosures
  • Messenger/Courier fees
  • Escrow fees
  • Recording fees
  • Transfer Tax fees (State, County, and/or City)
  • Home Warranty

Even though these expenses occur only once, they add up pretty quickly. That why it’s important for you to ask your lender for a “loan estimate” (formerly known as a Good Faith Estimate prior to 2016) early on in the process of home buying.

Recurring Closing Costs for Buyers

Recurring closing costs are the fees that the buyer will continue to pay, even after the close of escrow.  It’s common for these fees to be collected in advance for establishing impound accounts. The types of recurring closing costs include:

  • Fire Insurance Premiums
  • Flood Insurance
  • Homeowners Association (HOA) Dues
  • Property Taxes
  • Prepaid Interest
  • Private Mortgage Insurance (PMI) Premiums

Typically, if you bought your house with a downpayment of less than 20%, your lender will require an impound (or escrow) account. An impound account is basically a separate account managed by the bank to collect additional costs (such as property taxes and homeowner’s insurance) outside of your mortgage. The lender will generally divide the annual costs of those services into a monthly amount and add them on top of your principal and interest payments.

Everything Is Negotiable

In the end, it’s important to remember that (nearly) everything is negotiable when purchasing a house—and that includes closing costs!

Here are some ways you could potentially minimize your closing costs:

  • Negotiate with the seller to pay some (or all) of the non-recurring closing costs
  • Shop around different lenders’ “Loan Estimates” and packages to find the best one that works for your budget
  • Ask your lender about wrapping your closing costs into your mortgage (if it makes sense)
  • Negotiate loan origination fees with your lender
  • Get lots of quotes on homeowner’s insurance to find the one that works best for your needs (and your budget)
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Kyle Renke is a Sacramento-based real estate agent with Keller Williams Realty and The David Greene Team. Kyle is the primary author and contributor behind RelentlessFI.com, an online community and blog dedicated to those who are relentlessly pursuing financial independence. A lifelong learner, Kyle holds two Master’s degrees, coached college basketball, and has taught himself to develop websites and cloud-based software. Kyle loves teaching, coaching, writing, watching basketball, and going on hiking adventures in the Sierra Nevada's with his wife and two children.