The Costs: A Basic Rundown
So you have found your perfect property but outside of the purchase price, what are the other costs? Costs can be broken down in two subcategories; acquisition and financing. The former are incurred when completing a deal between you (buyer) and the seller, while the latter are incurred between you and your finance institution; if you require one.
Acquisition Costs
- If you are using a real estate broker, a fee ranging from 5.0% to 7.0% is usually charged and split between the buyer and seller.
- A tax known as a transfer tax occurs when title changes on real property. This tax ranges from 2.0% to 4.0% and varies by municipality. It is split between both the buyer and the seller.
Financing Costs
- The origination fee averages 1.0% but could be higher depending on the lender. It is also known for lenders to forgo an origination fee in favor of a higher interest rate.
- Interest rates vary depending on the length of your loan and the corresponding rate index. Indexes include but are not limited to the Wall Street Journal Prime Rate (Prime), the Five Year U.S. Treasury Rate (5-year UST), and the London Interbank Offered Rate (LIBOR). On top of the index, the Bank charges a spread in basis points; which are equal to 1/100th of a percent.
- Title insurance ensures that the property is owned by the seller, and that it is clear of liens for unpaid taxes, claims of ownership by third parties, and other issues which my damage your ownership in the property. Title insurance is purchased up-front at a rate determined by the loan amount, and is a requirement with a lender.
- Other small fees which may or may not be charged by your financial institution include an appraisal fee, analysis fee, and search fees.
For more information, the Zillow Real Estate Wiki offers great information, including how to save on closing costs.
Technorati Tags: Banking, Commercial Lending, Zillow
Posted on March 20th, 2007 | By: bootstrap economist | Filed under Banking
Leave a Reply
You must be logged in to post a comment.