Just want to get a broad idea of how much money I would pay out of pocket to buy a house? How do mortgage points work in real estate transactions? Below is a simple explanation.
Buyer Transaction Costs
- Loan-Related Fees: Charged by your lender for processing the mortgage, usually 0.5%–1% of the loan. This includes the loan origination fee, appraisal ($450–$800), credit report ($30–$60), and optional discount points.
- Title & Escrow: Buyer’s title insurance protects the lender, and escrow fees cover the neutral third party managing the funds and documents. Escrow is often split with the seller, while recording fees are a few hundred dollars.
- Inspections & Reports: Home inspections ($300–$700) are optional but recommended. Termite inspections ($75–$150) and other specialized inspections ($150–$400) may also be needed.
- Insurance & Prepaids: Buyers prepay a portion of property taxes and the first year of homeowner’s insurance ($800–$1,800). Escrow accounts may also include 2–6 months of taxes and insurance.
- Miscellaneous: HOA documents ($300–$800), wire fees ($15–$50), and optional home warranties ($350–$750).
- BRBC (Buyer’s Real Estate Broker Commission): Typically, the buyer’s agent commission is included in the seller’s listing agreement, but it’s important to clarify how your agent is compensated. Some agreements may require the buyer to contribute in certain situations, such as when the listing agent offers a reduced commission. Always discuss BRBC upfront to avoid surprises.
In short, on top of the down payment, buyers typically pay 2% to 5% of the purchase price in closing costs.
How Discount Points Work
A discount point is a fee you pay upfront to your lender in exchange for a lower mortgage interest rate. One point equals 1% of your loan amount—for example, a $500,000 loan means one point costs $5,000.
Each point generally reduces your interest rate by about 0.25%, though this can vary by lender. For instance, a 6% rate could drop to 5.75% with one point, or 5.5% with two points. Lower interest rates mean lower monthly payments and less total interest over the life of your loan.
Example: On a $500,000 30-year fixed loan:
- 6% interest → monthly payment ≈ $2,998
- 5.75% interest (after one point) → monthly payment ≈ $2,912
- Monthly savings: $86
- Break-even point: roughly 58 months (~4 years 10 months)
Discount points make sense if you plan to stay in your home long-term, have extra cash at closing, or want smaller monthly payments. They may not make sense if you plan to sell or refinance before reaching the break-even point.
Conclusion
Buying a home in California involves more than the down payment. Expect to pay 2%–5% of the purchase price in closing costs, plus optional fees like discount points if you want a lower mortgage rate. Be sure to clarify BRBC arrangements with your agent so you understand how your broker is compensated. Knowing these costs upfront will help you budget better, plan your finances, and make smarter decisions when buying your home.
About Me
My name is Helen Xiong, and I am a Realtor® with Coldwell Banker George Realty in Los Angeles. I am dedicated to helping people achieve homeownership and build a better life. As the saying goes, everything begins with land. I am here to help you with your real estate needs, whether you are buying, selling, or simply learning about the housing market.
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