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The Closing Costs Each Side Pays on an Investment Property Transaction

by | Jan 6, 2021

Closing costs for an investment property might take on a slightly different dynamic than an owner-occupied property. As we have explained in a different discourse, closing costs are the totality of fees and expenses both sides to the transaction are meant to pay in the closing phase of the transaction. Closing costs are one of the reasons why buying an investment property should be a deliberate, informed and well thought out decision, because in planning the cost of acquiring an investment property, closing costs are one of the expenses to be put into consideration.

As in other traditional transactions, dealing in investment property involves a buyer and seller and both parties have parts of the closing costs they are obligated to shoulder.  We’ll be discussing in some detail the closing costs that the buyer and seller pay in the closing stage of buying an investment property.

Who pays for what?

The buyer and the seller pays closing costs ranging from 2 to 5% of the entire price of the property. For buyers, Closing costs for an investment property are usually tied or related to the mortgage and can include but not limited to the following:

  • Credit Report fees : To see if you qualify for a mortgage, your lender may charge you for running your credit report and score.
  • Appraisal Fees : Property appraisals are very crucial when you’re trying to buy a property. as the word goes, the appraiser helps you have an understanding of the sale price and also to determine if the sales price of the property is justified.
  • Mortgage Application fee: Unless you have probably have the cash to buy the property which isn’t commonplace, the mortgage application fee is used to apply for a loan to buy the property and also process your application with the lender.
  • Search fees: The title search is done to verify that the records of the property are solid. The title search fee is charged by the title search company to ensure that no other party has a claim to the property title.
  • Notary fee: Having a licensed notary public who will witness the transaction and ensure that all documents are properly signed is also an essential part of the closing costs and the buyer is responsible.

The buyer bears most of the closing costs and it is not just limited to the ones we’ve mentioned above, Other closing costs for the buyer include : Escrow or earnest money deposit, attorney fees, property inspection fees, hazard insurance fee etc.

A few tips on reducing your closing costs.

  • Be patient and see if the seller will grant you a seller concession which means that they will share in the closing costs to motivate you to buy the property.
  • Pick a closing date close to the end of the month to avoid paying fees that might come early in the month e.g HOA fees.
  • Your negotiating power also helps reduce costs.

Summarily when buying an investment property, plan out the numbers (finances) and focus on details.

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