When it comes to buying a home, understanding the financial aspects of the transaction is crucial. One of the most important components of the home buying process is closing costs. In this podcast, Josh Pulpan and EJ Pulpan dive into the intricacies of buyer closing costs, differentiating between recurring and nonrecurring expenses and exploring how these costs can vary depending on your location.
Recurring vs. Nonrecurring Closing Costs
Before delving into the specifics of buyer closing costs, it's essential to distinguish between recurring and nonrecurring expenses.
Recurring closing costs are those ongoing financial obligations that you'll continue to incur even after the sale is complete. These typically include property taxes and home insurance premiums. As a buyer, it's important to budget for these costs, as they will become a part of your homeownership expenses.
On the other hand, nonrecurring closing costs are fees associated specifically with the transaction itself. These expenses are paid during the purchase process and won't continue once the ownership transfer is complete. Examples of nonrecurring closing costs include escrow fees, title fees, transfer taxes, recording fees, and notary fees.
Closing costs can vary significantly from one county to another, so it's important to be aware of the regulations and practices in your area. Let's take a closer look at some examples:
Santa Clara County: In Santa Clara County, the responsibility for certain closing costs is primarily on the seller. This includes the county transfer tax, which amounts to $1.10 per thousand dollars of the purchase price. Additionally, escrow and title fees are typically paid by the seller.
City Transfer Taxes: Some cities within certain counties have their own city transfer tax. For example, in San Jose, there is a city transfer tax of $3.30 per thousand dollars of the purchase price. However, for properties valued over $2 million but less than $5 million, there is an additional tax known as Measure E, that is $7.50 per thousand dollars. For properties between $5 million and $10 million, it becomes $10 per thousand dollars. For transactions exceeding $10 million, the tax is $15 per thousand dollars, often split equally between the buyer and the seller.
Santa Cruz County: In Santa Cruz County, the burden is shared more evenly between the buyer and seller. Title and escrow fees are typically split 50/50, but the seller is usually responsible for the county transfer tax.
Property Taxes: Property taxes at closing are calculated based on the seller's basis, which is often lower than the new buyer's basis (the purchase price). Buyers may initially receive tax bills based on the previous owner's basis and later receive a supplemental tax bill to account for the difference. After the first billing cycle, buyers should receive tax bills based on their new basis, the purchase price.
Managing Closing Costs
Managing buyer closing costs involves careful planning and budgeting. Here are a few key considerations:
Homeowners Insurance: As a buyer, you'll need to secure homeowners insurance. Shopping around for the best rate and including it in your closing costs is a common practice.
Prorated Fees: Some fees, like property taxes, may be prorated based on the closing date. This means you'll only pay for the portion of the installment during which you own the property.
Supplemental Tax Bills: Be prepared for supplemental tax bills, especially if the property's basis is lower than the purchase price. These bills account for the difference and are typically paid in two installments.
Understanding buyer closing costs is essential for a smooth home buying process. By knowing what to expect and how costs are distributed in Santa Cruz County and Santa Clara County, you can make informed financial decisions when purchasing your dream home.
In conclusion, while the specifics of buyer closing costs can be complex and vary by location, being well-informed is your best ally in navigating this critical aspect of home buying. If you're considering a real estate transaction in the South Bay, don't hesitate to reach out to our team at Christie's International Real Estate Sereno for expert guidance and support.