Buying an investment property can be a complicated process if you don’t take the time to make a proper budget and absorb the complications that can come up along the way in order to guide your expenses. Making money in real estate is never easy; investors must be aware that they will be making difficult decisions along the way to ensure they are getting what they need and want in a property. Every real estate property is expected to have costs, whether maintenance and upkeep after the purchase or closing costs during the purchase. It’s important to know what you must pay before taking the first real estate investing step. So, do buyers or sellers pay the closing costs?
Knowing every detail about an investment purchase is the duty of all real estate investors. You must conduct a proper research and analyze all aspects of it to ensure a successful and worthy investment. Most beginner real estate investors wonder about costs of the property in general as well as do buyers or sellers pay the closing costs?
What are closing costs?
Do buyers or sellers pay the closing costs is not the first question we must address. Rather, what are closing costs exactly?
Closing costs are any fees that can arise when buying an investment property or a home. They are referred to as closing costs as they will be paid at the final step of your purchase. Closing is the step where the title is transferred from the seller to the buyer. Closing costs are typically 2-5% of the entire price of the property.
Many real estate investors are still wondering do buyers or sellers pay the closing costs or are they something that can be delegated to both?
Do buyers or sellers pay the closing costs?
There is no right or wrong answer here! In many situations, both the buyers and sellers can take a chunk of responsibility for such costs. As a buyer, you must know that you can negotiate many things throughout your real estate deal and closing costs are one of them!
In a buyer’s market, closing costs are usually divided between the buyer and the seller. This may not be the case in a seller’s market as properties seem to sell quicker and sellers will have a selection of offers to choose from.
So, do buyers or sellers pay the closing costs? It depends on the state of the real estate market as well as your (or your real estate agent’s) negotiating skills.
Knowing what you must pay as a seller and a buyer is necessary for a successful property purchase. However, property buyers must ensure to factor in all costs to establish a handsome return on investment. Both investors and sellers must be aware of the two sides of closing costs:
What closing costs should you expect?
Knowing how much the closing costs are can help the investor figure out the details of his/her investment before going through the process. Note that some of these costs can be shared by the property buyer and the property seller.
Here is a list of what closing costs to expect:
Appraisal fee
An appraisal fee is expected when you buy a property. The appraiser can help you as a buyer and as a seller to get the current market value of the property. Appraisals usually cost somewhere between $300-$600 for a single-family home and can increase along with the square footage of the property.
Related: Should I Get a Real Estate Market Analysis or a Home Appraisal?
Mortgage application fee
A mortgage application fee is a cost that you can’t avoid unless you can pay for a property in cash, which may not be attainable for everyone. You pay the application fee when you apply for a loan in order for the lender to process the application and deem you worthy. The application fee is a closing cost that the buyer takes full responsibility for. Some lenders even offer you a credit check and a property appraisal when you apply for a loan.
Related: What Are Options for Investment Property Mortgage Loans?
Credit report fee
Not all mortgage application fees include a credit report fee within them! You will need a tri-merge credit report in order for the lender to find all the information needed about your credit score and history altogether.
Property taxes and insurance deposit
Do buyers or sellers pay the closing costs related to property taxes and insurance? The answer is clearly the new owner. These costs are considered one-time startup costs for the property buyer. He/she will be required to put a deposit of at least two months of property taxes and mortgage insurance at closing. These costs are a must-pay for investors, so make sure to factor them in with your initial calculations.
Related: Learn How to Do Taxes on an Investment Property.
Title search fee
Many real estate investors are asking, “do buyers or sellers pay the closing costs related to the title?”
Hiring a title search company is a must for property buyers to ensure that the records for the property are solid. A title search is a necessary, inescapable step as it ensures that no one else has any claim on the property.
Loan origination fee
The loan origination fee is estimated at 1% of the total borrowed amount.
Attorney fees
Attorney fees come from all directions when buying an investment property. For both the property buyers and the property sellers, it’s important to have an experienced attorney to make sure you don’t fall for any legal mischiefs. Many states oblige both parties to have a real estate attorney present at the closing.
Notary fee
A licensed notary public is essential as you will need to have one as a witness to ensure that all the documents were signed properly. Paying for the notary may be waived if you’re signing in a title company or an escrow office as their services often include notary services.
Survey fee
Do buyers or sellers pay the closing costs when it comes to survey fees? This can be different from one situation to another depending on the initial contract. A survey is needed to ensure the property lines. Survey fees are usually somewhere between $800-$1000.
Courier fees
If you’re investing in real estate, you will need courier services. Make sure to calculate these costs as they can add up.
Hazard insurance premiums
These are fees covered by the buyer to ensure the lender is protected against any natural disasters that might occur.
Whether you’re buying rental properties or buying a home for yourself, these costs are unavoidable. Many real estate investors have managed to find a way to negotiate responsibility with the sellers in order to minimize the closing costs they have to pay.
Related: Real Estate Investors Want to Know: How Much are Closing Costs?
Investing in real estate has many costs- both one-time startup costs and recurring costs. It’s the duty of every buyer to ensure the clarity of who pays what with your initial agreement to make sure no misunderstandings occur between the property buyer and the property seller. The list outlines the most important costs that real estate investors have to cover. If you have any further ideas about closing costs, please share them with us in the comments section.
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