How To Close a Real Estate Deal and Go Through Settlement

Closing Costs

When people say that real estate has high transaction costs, they are usually referring to closing costs for the bulk of it. Because you are a buyer, we'll only be covering the buyer portion in this article.

Typically, the buyer pays the following line items:

• Downpayment
  • This is the downpayment (typically 20%+) that is used to purchase the home.
• Credit Report
  • A credit report is usually drawn alongside your financing by your lender. This report is used as part of your loan application and is needed to close on your home as it is a part of the financing.
• Transfer taxes (state + local)
  • Transfer taxes are usually state and local fees that are charged anytime a piece of property with a deed is transferred. This means you pay a tax to a local government for the transfer of a property to your name officially. This is usually based off a percentage of the home value.
• Escrow deposit (covers taxes)
  • Transfer taxes are usually state and local fees that are charged anytime a piece of property with a deed is transferred. This means you pay a tax to a local government for the transfer of a property to your name officially. This is usually based off a percentage of the home value.
• Agent and/or attorney fees
  • This is a one-time fee that you pay to a lender to acquire a loan. It is usually based on a percentage of the loan amount.
• Loan origination fees
  • This is a one-time fee that you pay to a lender to acquire a loan. It is usually based on a percentage of the loan amount.
• Record fees (for mortgage and deed)
  • This is typically a small one-time fee under $500 that is used to cover paperwork for the mortgage and deed of the property.
• Title fees (search and insurance)
  • You will want to pay for Title Search and Title Insurance. Title search is important to make sure there are no other outstanding persons who may be on the title of your home. This is to ensure that the seller is the only seller (and other stakeholders will not block the purchase). Title insurance can be purchased to make sure that there aren't any issues with the Title post-close.
• Land Survey fee
  • Depending on the property, you may want to purchase a land survey. This is used to make sure the home is up to current local standards. This is especially important with older homes or homes that have been renovated.

The typical closing costs vary from locale to locale. You should budget around 5% of the purchase price towards the closing costs, but this is just a general rule of thumb. This means that an investment property purchase requires around 25% of the home purchase price in order to cover the entire transaction because of the downpayment.

The Home Stretch

And that's basically it! On the day of closing, you'll want your agent next to you. After that, it's just a matter of exchanging materials and signing contracts.

The only thing is to make sure you know what you are signing!

After closing, you'll have your property. And the only thing left is property management which will be the next article.

Conventional Loans for Investment Properties

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