Closing Costs on Investment Purchases, in Plain English
Closing costs can surprise first-time investors. Here's what each line on the closing statement pays for, and how to estimate the total.
Short answer
Closing costs on an investment purchase fall into four groups: lender costs such as origination and underwriting; third-party costs such as appraisal, title and escrow; government recording fees and transfer taxes; and prepaid items such as insurance and property tax escrows. Totals vary by state, loan size and program.
Key points
- Lender, third-party, government and prepaid costs.
- Totals vary widely by state and loan size.
- Get an itemized estimate before you commit.
What's on the closing statement
| Cost | What it pays for |
|---|---|
| Origination or points | The lender's fee, sometimes used to lower the rate |
| Underwriting and processing | Reviewing and preparing the loan |
| Appraisal | The value, plus a rent schedule on DSCR loans |
| Title insurance and search | Confirming and insuring clean ownership |
| Escrow or settlement fee | The neutral party handling funds and documents |
| Recording fees and transfer taxes | Government charges to record the deed and loan |
| Prepaid insurance and tax escrows | Upfront premiums and reserves for the first bills |
Why totals vary
Transfer taxes and title rates are set largely by state and county. Lender costs vary by program and loan size, and prepaid items depend on your insurance premium and the local tax calendar.
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Keeping costs in check
- Ask for an itemized estimate early, and compare it line by line.
- Weigh points against the rate; see what half a point does to your payment.
- Shop insurance before closing, since the premium affects both cash to close and DSCR.
To see closing costs alongside down payment and reserves, see cash to close on a rental.
Frequently asked questions
How much are closing costs on an investment property?
They vary by state, loan size and program. Ask your lender for an itemized estimate early so you can plan your cash to close.
Are closing costs higher on investment properties?
They can be, because pricing and some costs differ for investment loans, and investors often close in an entity.
Can closing costs be rolled into the loan?
On purchases, usually not directly, though seller credits or pricing options can offset some costs. On refinances, costs are often included in the new loan.
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