eal estate transactions come with various costs and expenses you will incur in order to complete a deal. Make sure to understand these costs when you are buying or selling a property. These costs, known as closing costs, can total as much as 2% to 5% of the real estate’s purchase price.
Application fees
To obtain a loan from a financial institution you will usually have to pay the loan provider application fees. Ask your loan provider about potential fees charged to process your application.
Escrow fees
A real estate transaction will require keeping the funds to be transferred in escrow which means a third-party will keep the money and make sure the funds are legitimately transferred to the seller from the buyer. Often this entity can be an attorney, title company or escrow company, will charge fees for this service.
Lawyer fees
Many times, it is best to have an attorney look over or draft the legal documents and contracts necessary to finish the real estate deal. This will mean paying lawyer fees.
Credit report charges
You will need to show your loan provider you are trustworthy and can be depended upon to repay the loan. Therefore, you will have to provide a credit report from credit reporting agencies who will charge you fees ranging from $15 to $30.
Courier fees
There could be situations where time is of the essence for closing a real estate deal. Therefore, it may be best to hire a courier service to expedite the real estate transaction process.
Origination fees
It is common for mortgage lenders to charge a fee for the administrative tasks necessary to process your loan. These charges are referred to as origination fees and are usually approximately 1% of the loan amount. Alternatively, lenders may levy interest rate charges as opposed to origination fees.
Lender’s title insurance
Your mortgage provider may charge you a fee to obtain lender title insurance to protect the loan provider against a situation where there is a lien on the property or when there is a dispute regarding ownership of the real estate.
Owner’s title insurance
Although this is not required, if you are a seller you may want to consider purchasing owner’s title insurance which can provide protection if a challenge arises over ownership.
Property appraisal fees
Part of the real estate transaction process will require the property to be professionally appraised in order to determine fair market value. This information will be utilized for calculating loan-to-value ratio.
Managing closing costs
Closing costs can be problematic if you are not aware of them ahead of time before completing a real estate transaction. They can significantly cut into your profits if you are purchasing a property for investment purposes. Therefore, figure these expenses into your overall financial planning in order to maximize the benefits of making the real estate deal, whatever your goals are. Since real estate is one of the main ways people create wealth, it might be smart to discuss options with us.
Opinions expressed in this blog post are those of the author and not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. The information has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. The material presented herein is not a recommendation of any kind. Raymond James Financial Services and its advisors do not offer tax, legal, or mortgage advice. You should discuss any tax or legal matters with the appropriate professional.