What closing costs include
Closing costs fall into five buckets:
- Lender charges: origination, discount points, processing, underwriting, and other charges shown on the written estimate.
- Title + escrow fees: owner's title insurance, escrow / settlement fee, title search.
- Government charges: recording fees, transfer tax, and mortgage tax where applicable.
- Prepaid items: insurance, tax or insurance escrows, and mortgage interest from closing to the first payment period.
- Due diligence: appraisal, inspection, optional radon/sewer/pest inspections.
Include transaction costs in total cash invested when computing cash-on-cash return. Omitting them understates modeled cash invested and overstates the resulting return percentage.
Frequently asked questions
What are typical closing costs on a rental property?
There is no universal percentage. The amount depends on the loan, points, jurisdiction, title and settlement charges, prepaid items, escrows, inspections, and negotiated credits. Use written lender and settlement estimates for the property before relying on the total.
What's included in closing costs?
Common categories include lender charges and points, title and settlement services, recording and transfer charges, prepaid interest and insurance, tax or insurance escrows, appraisal, inspection, and other property-specific due diligence. Not every transaction includes every item.
Are closing costs higher for investment properties vs primary?
They can differ because occupancy, loan program, leverage, points, reserves, insurance, and jurisdiction affect the quote. Compare written estimates using the same property, borrower, loan amount, rate-lock assumptions, and closing date.
Can closing costs be negotiated?
Some lender and service-provider charges may be negotiable or shoppable; statutory taxes and recording charges generally are not. Review the written Loan Estimate or equivalent itemization and ask which services you may choose before comparing offers.
Can closing costs be rolled into the loan?
It depends on the transaction and loan program. A lender may allow some costs to be covered through credits or added to a refinance balance, subject to underwriting and leverage limits. Financing costs increases the loan balance and total borrowing cost, so verify the exact treatment in the written quote.