Estimating Closing Costs
There is no doubt that investing in real estate is capital intensive whether you are an all-cash buyer or borrowing money. As a private lender, we want to ensure that our borrowers are fully aware of the costs involved with closing a loan that are in addition to their down payment and loan costs.
“Closing costs” include a laundry list of fees that apply when purchasing a property that generally include:
· Title Insurance (Owner & Lender Policies)
· Escrow Fees
· HOA Fees
· Recording Fees
· Tax Certificates
· Attorney Fees (Deed Prep)
· Wire Fee
· Mobile Notary Fee
· Survey
· Appraisal
Title Insurance:
Getting title insurance is generally recommended and a lender will usually require a lender policy. In Texas, the cost of title insurance is regulated and the pricing is consistent across all title companies as follows:
Owner Policy* = $832 + (Purchas Price - $100K) x $0.00527
Lender Policy:
If Loan Amount is < Purchase Price, Cost = $100
If Loan Amount is > Purchase Price = $100 + (Loan Amount – Purchase Price) x $0.00527
Ex: Purchase Price = $200K / Loan Amount = $250K
Owner Policy = $1,359 ($832 + $100K x $0.00527)
Lender Policy = $364 ($100 + $50K x $0.00527)
*Calculation is assuming the policy is based on $100K - $1MM in coverage.
Escrow Fees:
These are the fees the title company charges for managing the sale/closing. Often these escrow fees are equally shared by the buyer and seller and will be spelled out in the contract to purchase. Escrow fees are set by each title company and $800-$1,000 is to be expected.
HOA Fees:
If the property is in an HOA, there are often fees related to providing HOA covenants and transferring to the new owner. The fees can vary widely from $150 - $1,000.
Recording Fee:
This covers the fees for recording the deed, deed of trust, and other documents with the applicable county. Most title companies file electronically. Estimate $100 - $200.
Tax Certificates:
The title company verifies property taxes owed via Tax Certificates. Estimate $75.
Attorney Fees (Deed Prep):
Often this fee is for an attorney to create the deed that will be used to transfer the property. Estimate $100 - $150.
Wire Fee:
This covers the costs of any applicable wires (typically from lender). Estimate $50.
Mobile Notary:
A mobile notary may be sued when the buyer prefers the convenience of closing at their location (vs at the office of the title company). Estimate $150-$200.
Survey:
Often the seller will have an adequate survey. If they do not, a lender may require a new survey ($400 - $500) for a standard neighborhood development. Depending on the contract, this could be either the buyer’s or seller’s responsibility.
Appraisal:
Although some lenders will provide their own opinion of value, many lenders will require an independent property appraisal. Estimate $400 - $500.
In summary, these are common closing costs and they can add up to real money (1.5 – 2.5% of purchase price). It is important for an investor to have a realistic understanding of each of the closing costs to help properly estimate the total cash needed to close.
