You may look at the price of a potential Gaithersburg investment property, and think you’ve got a fairly good deal.
However, do not be fooled – more lies beneath the surface.
Besides the price tag of a rental property, there are numerous miscellaneous fees you can expect to pay when financing a rental.
But do you know what those fees are?
If you are looking to invest in a rental property in the Montgomery County area, and are curious about what fees to expect while financing that property, keep reading.
Today we are going to give you the lowdown on what you can anticipate paying while financing a Gaithersburg rental property, so that you don’t walk away more empty-handed than you expected to after this major purchase.
10 Common Fees to Expect While Financing a Rental Property
1. Private Mortgage Insurance
If you put a small down payment on a rental property (typically less than 20% down), it is likely you will need to purchase what is called private mortgage insurance (PMI).
This policy will protect your lender from losing money, should you end up foreclosing on the property.
The problem with this added fee is that sometimes the private insurer providing you PMI requires you to pay an entire year’s worth before closing on the property you are purchasing.
This can add up quickly, and adds a sizeable amount to an already expensive purchase.
2. Homeowners Insurance
Another common type of insurance that is typically required while purchasing a rental property (and is recommended even if it’s not required), is homeowners insurance.
This policy will protect you should your tenants, or some unforeseen disaster, damage the structure of your property in any way.
While homeowners insurance can be paid monthly throughout the year, thus reducing your upfront costs at the time of financing your property, you will still need to have a policy in place before closing on the rental, which means some sort of payment will need to be made right away.
3. Title Insurance
Title insurance is a way to protect yourself in the event the seller of the property you are purchasing did not in fact own the property, yet sold it anyway.
This kind of insurance protects both you and your lender from any losses arising from ownership disputes.
4. Processing Fee
When you apply for a mortgage with a financing company, there are application fees that you are expected to pay.
These fees do not typically surpass $500, though it is important you keep track as you continue through the process.
5. Origination Fee
In addition to paying a processing fee, you will be responsible for paying an origination fee to the bank or lender you are financing your Gaithersburg property through.
This is your way of paying them for creating the loan you are being approved for.
6. Credit Report Fees
Just like other major purchases people make that come with loan terms (e.g. cars, boats, and major appliances), your lender will want to run a thorough credit check on you before even thinking about loaning you money to finance a rental property.
This also includes any courier or postage fees. Do not expect the bank to pay for all of this for you.
7. Survey Fee
Drawing up a precise legal boundary of the property you are trying to purchase, as well as including other details related to the property’s land, must be done before the closing of an investment property, if an existing survey does not already exist.
8. Appraisal Fees
An appraisal consists of a professional appraiser evaluating the property you are purchasing, and estimating its market value.
You must have an acceptable appraisal before you can finance a rental property.
A good appraisal is in place so that lenders do not give away too much of their own money.
In short, lenders need to know that the property you are purchasing is worth more than what you are paying for it. This way, should housing prices drop, lenders can easily recover their money.
9. Inspection Fees
Not all lenders require a general inspection of the property you are about to finance.
However, with things such as mold and pests being such a costly problem to deal with later on, it is sometimes worth the money to have a thorough inspection performed at the rental you are about to finance.
The last thing you want to deal with is a landlord-tenant dispute over who is responsible for pests in a rental.
In addition, it is your legal responsibility in Maryland to ensure that your tenants have a safe and habitable home to live in, free of mold or lead paint.
10. Recording Fees
Recording fees are fees you will pay the county or city to officially record all of the real estate documents that are drafted during your investment property purchase.
In Montgomery County, you will pay $6.90 per thousand dollars financed, $10.00 per thousand dollars financed over $500,000, a 1.5% transfer tax (1.0% to the county, 0.5% to the state), and a property tax of $0.883 per hundred dollars assessed.
Financing a rental property in Montgomery County is no easy feat.
You do not simply look at the price tag of the property and pay that amount.
Unfortunately, many first-time buyers do not understand this process in full, and can become very surprised, and discouraged, during the closing process.
Do not let this happen to you.
If you are looking to invest in a Gaithersburg rental property, or perhaps have just invested, and are facing not only the reality that you now have a mortgage to pay, but also that you have no tenants in your property, contact Bay Management Group today.
We can place a tenant in your rental property within 30 days or less of being hired on to help you.
In addition, we charge a low 8% monthly management fee, which is amongst the lowest in both the Baltimore and Washington, D.C. metro areas.
Self-managing a rental property is a tough gig after just going through the exhausting process of financing a new property.
Let us at Bay Management Group help you manage your property for a low monthly management fee, and place high quality, high paying tenants in your rental so you can start to recoup some of those fees you paid during the financing of your property.