When looking to buy or sell property you will incur various costs and expenses that are associated with the completion of a real estate transaction. It is important to be aware of these costs since they will affect your family financial planning and will cut into potential gains from investment properties. There are numerous types of charges and fees which make up closing costs which can add up to around 2% to 5% of the property’s purchase price.
Application fees
The financial institution which provides the loan you need to purchase a property will commonly charge fees for processing your application for a mortgage. You may want to inquire about potential fees when speaking to a lender for your real estate transaction.
Attorney fees
At times it may be necessary to have an attorney draft and review the legal documents for completing the real estate transaction which means you will have to pay legal fees.
Escrow fees
The entity that handles the closing and keeps the funds being used to buy the property in escrow will charge a fee for enabling the transaction. This third-party can be either an escrow company, title company or even in some cases an attorney.
Courier fees
Many times, efficiency is important in closing a deal that could be time sensitive. This is why you may have to pay for couriers to expedite the process of having the relevant documents signed and delivered to the appropriate party at the right time.
Credit report fees
In order to obtain a mortgage loan to purchase a home, you will have to prove to the lender that you have good enough credit. Therefore, you will likely need to pay credit report fees to the three credit reporting agencies. The fee from each agency will usually be around $15 to $30.
Origination fees
Your lender may charge you a fee for administrative services necessary to process your mortgage. Usually, origination fees are around 1% of the amount of the loan. On the other hand, some lenders will charge you higher interest rates, rather than origination fees, in order to cover administrative costs.
Lender’s title insurance
Lenders commonly require that a fee is paid for lender title insurance which protects the lender in the case that a lien or dispute over ownership of the property arises. This covers issues which did not show up in the title search.
Owner’s title insurance
If you are the seller you may want to purchase owner’s title insurance which protects you in the case that your ownership of the property is challenged.
Property appraisal fees
The company which completes the appraisal for the fair market value of your property will charge you a fee for the service. This assessment will be used to figure out the loan-to-value ratio.
Plan for closing costs
Which closing costs you will encounter during your real estate transaction will be based on which state you live in and the applicable rules. It will also depend on your own personal choices since some closing costs are optional. Make sure to figure out what is the best plan of action for you when it comes to incorporating closing costs into mapping out your real estate transaction. Trustworthy wealth management firms will be equipped to assist in formulating a financial plan for this particular purpose as well as many other family financial planning endeavors.