In my last post on this platform, we discussed extensively on when exactly could a property sale or purchase transaction process be said or deemed to be closed to disregard any form of complaints or demand of refund of money from the buyer or the seller.
I also remember that I promised to write an article to show you some of the most complex, complicated and very important closing costs every investors, homeowners , sellers and lenders or mortgagees must be aware of and be prepared for whenever they find themselves in a property sale or purchase transaction or deal process.
Although real estate investing or property purchase can be acquired using variety of property financing methods which include several unconventional means which I think is beyond the scope of this article for us not to lose focus of the purpose of this post.
However, the most common financing methods used by most investors and homeowners are either the property is purchase in an all cash down purchase transaction or the property purchase is financed through the conventional mortgage loan by a lender or a financial institution such as a bank or a mortgage company.
Most times when I find myself philosophizing on the need for a well organized real estate industry with some real estate investors, clients and enthusiasts and try hard to convince them or make them understand the opportunities and possibilities that abound in real estate investing particularly financing property purchase using the conventional mortgage loan by a lender or a financial institution, many usually don’t take me serious and see my ideas or suggestions as a cockedeye plan or inchoate which may not see the light of the day in Nigeria.
They argue that my opinion, suggestions and initiatives can only work in civilized countries, that we are not there yet and our government’s natural tendency to somehow peremptorily repudiate any request or demand for good initiatives, developed or designed to better or improve the plight of the average citizens is a major hindrance to adopting and trying new ideas, concepts, initiatives and creativity in real estate investing to help people build wealth.
I strongly believe that we can improve upon what we presently have in place in the real estate industry through sincere and active participation and involvement of government, private organizations and individuals if government decides to play its roles by thinking outside the box and not just tie itself to its usual or old ways of doing things.
Government must change its defeatist approach to solving the parlous state of the economy that is making the people lose their human qualities, It should leave its comfort zone and be more creative, dynamic, innovative and proactive in its policies to stimulate the real estate industry as well as encourage many to invest through tax benefits.
If government can learn how to speak the investing language people understand especially in real estate investing by promulgating laws that promote good tax initiatives, benefits and advantages to encourage everyone to invest in real estate regardless of their societal class or classification, location, income, gender, age
Most developed nations of the world speak and apply this investing language on their citizens not only to show its commitment to the plight and welfare of their citizens but also to encourage everyone to invest in real estate in order to stimulate the real estate industry.
In most of these developed countries, what you hear people talk about often when making investment decisions is how they can harness their resources and properly strategize to build wealth and financial stability using several tax advantages and opportunities their real estate industry avail them with such as tax savings, strategies, break, relief, bracket, haven, deferral, exempt, free allowances, credit, deductibles etc which are designed specifically to enable the citizens file their tax returns taking into consideration their societal class and geographical location.
In contrast to what we have here in Nigeria, where every idea, law or project conceived for no good or sincere reasons provides the government with a very good opportunity to levy a tax on its citizens even if the laws, activities or projects are of no real value or benefit to the average citizens but rather designed to help or protect the interest of political office holders, highly influential people and their cohorts.
I still find it very difficult to understand why our government cop out of every or any idea and initiatives that will have great positive impact in alleviating the economic hardship of the people as well as improve the welfare and wellbeing of the masses.
I want to emphasize that the government is responsible for creating an enabling environment for investors by pump priming the sector, putting in place functional and well structured mortgage system, making available several financing options, numerous tax benefits and advantages to investors together with good but strict laws to regulate and control all activities and excesses of participants, professionals and stakeholders in the real estate industry.
This will enable government to earn and win the trust and confidence of the people as well as get their support in complying with its tax laws and recording also there would be no need for anyone to express any doubt on the other government initiatives and programs particularly on whether paying tax is right or not because it will be obvious that the government is sincere about helping its citizens build wealth.
I must admit that we deviated a little bit from the main purpose of this post which is to help you understand and increase your knowledge on the ethos of the real estate professional services by investment management companies, brokerage firms, brokers and agents particularly on property sale or purchase transaction closing costs to help determine who customarily pays for what among the homeowners, sellers and lenders involved in the transaction.
It might interest you to know that the real estate or property sale or purchase transaction closing costs to be paid or shared among the buyer, seller and lender are more than thirty, 30, some are expressed as separate costs while some are instinctively added to the closing costs to be paid for by one or all parties involved in the sales transaction.
I may not be able to expound on all of these real estate closing costs in this post because of time and the fact that you can also have access to all of them in my new book, titled Demystifying Real Estate Investing that should have been out for sale online but for some technical reasons and circumstances beyond my control is still not out yet.
However, I would discuss one of the most important closing costs that is critical to the success of every property investment and it also help investors to make investment inform decision when seeking funds to finance property purchase via the conventional mortgage loan by a lender or a financial institution such as a bank or mortgage company.
Most property purchase financing through mortgage loan are only accessible through a mortgage originator at a fee known as the loan origination fee or the activation fee. This fee is an upfront amount charged by the lenders, financial institutions, real estate brokerage firms and agencies that render this service.
This service is customarily paid for by the buyer or the loan applicant as part of the closing costs of the property purchase and It is a payment made for the processing of a new loan application from the buyer or the loan applicant trying to finance the property purchase through use of a mortgagee.
The fee often time is regarded as a compensation fee for the service rendered a mortgagee to put a loan in place or received for the burdensome process involved in taking out loan for an applicant or the buyer.
To have a better understanding of what the loan origination fee is all about in accessing a mortgage loan facility. The buyer or loan applicant using a loan originator will be required to pay for the activation fee which actually sets the ball rolling for loan consideration, verification, processing, underwriting and approval.
It allows the mortgagee to calculate and determine the mortgage rate for the loan, prepare and perfect all the necessary and relevant paperwork for the mortgage loan approval as well as verification of all the buyer’s or applicant’s claims based on the information or details provided.
In facilitating the mortgage loan process the buyer or the applicant is subjected to other mortgage loan charges known as the processing fee and the underwriting fee to cover the time and efforts used to carry out a research or study to determine if the loan applicant or the buyer would be a trust worthy client for the mortgage loan to be approved.
Although the loan origination fee is usually between 0.5% to 1.0% of the total mortgage loan amount but sometimes the fee is negotiable especially if you feel it is on the high side and you can as well do a little research to check out or hunt for a better mortgage loan products available from other lenders or financial institutions to get the best available mortgage product.
For instance, the National Housing Fund offers mortgage loan facility of #15million ($41095.89) at 6% mortgage interest rate per annum over 30 years period with about 30% downpayment but the public can only access this loan facility through a loan originator.
The reason for this is to make the process easier and faster for the mortgagee because the burdensome process of mortgage loan prequalifying and ensuring the loan applicants meet the minimum requirement standards for loan approval has been taken away from the mortgagee or the National Housing Fund.
Let me quickly chip this in, besides qualifying and meeting the minimum requirements or standards of the National Housing Fund for mortgage loan approval, applicants also must be a contributor of the bank for six months to simply put it you must have an account with the National Housing Fund that must have been on or running for not less than six months before you can access this mortgage loan facility.
This best explicate why some investment management company, brokerage firms, brokers and agents render this service to their clients who need to finance property purchase via the conventional mortgage loan by a lender or a bank. They help the mortgagees with the applicant’s mortgage loan prequalifying exercise for loan approval.
It is also worthy of note that you may also want to consider shifting this responsibility of paying for the loan origination fee to the seller if you discern that the seller is highly motivated to sell the property as fast as possible, you can ask the seller to pay and you may be surprised that the seller might decide to pay for the loan origination fee just to complete or close the property sale contract agreement.
I want to reiterate that real estate sales or purchase closing costs are more than thirty and I know that many real estate investors, professionals, homeowners and enthusiasts may not know, have any knowledge of or understand some of these property sale or purchase closing costs and this accounts for why many perceive real estate investing as a game or business venture designed only for people with financial muscle.
I have been correcting some of these real estate erroneous beliefs in most of my articles by demystifying real estate investing, creating awareness of investment opportunities and possibilities in real estate and of course promoting excellent initiatives in real estate investing and investment property management that can give us the much desired turn around in the real estate industry.
I strongly believe if government plays its role by opening up the sector through provision of great classified tax laws, numerous tax benefits and advantages for investment property to encourage individuals to take advantage of these benefits. It will be a win win situation for both the government and the people.
This will make real estate investing transactions processes, recording, monitoring and payment of property taxes a lot easy for tax service agencies because reasonable citizens would at this time have confidence in the government and its plans and would want to support and comply with all initiatives in order to be a partaker and beneficiary of the windfall from government in form of tax deferrals, savings, deductibles etc which will also help the citizens take control of their financial predicaments.
I would love to pontificate here that this exercise should not be seen as a white elephant project, it is something that can be executed, implemented and achieved even at the local government level if government develop functional policies, framework and strategies to ensure its success.
All that is required is to define and separate to distinguish all investment properties from personal or principal properties, identify all growth opportunities for investment properties and personal properties and create tax laws with great benefits, constraints and restrictions that will regulate, control and of course sustain these laws.
Ensure these laws enable the people enjoy tax benefits, savings, deductibles, breaks, exempt, free, relief and bracket depending on the type or class of properties and individuals involved. It must also allow people to defer tax payments on their investment property transactions or exchange provided all profits of such investment property transaction are reinvested into another investment property.
This process can be repeated as many times as possible until the property status changes from investment property to personal property before the investor or the homeowner is liable to pay tax as it is done in developed countries.
However, there are other taxes that are paid on real estate transactions such as capital gains, income tax etc depending on the investing strategies and goals of the investor and this is determined by the laws which clarify the conditions to be met for a property to be categorized as an investment property to defer tax.
Let’s drop the curtain here on this topic hopefully we shall look at some other important and hidden real estate sale or purchase closing costs in my subsequent post to get you acquainted and prepared for some of these ruinous closing costs should in case you find yourself in a property sale or purchase transaction.
If you like what you have read or gain anything from this post, you can like and follow us to get more great posts on real life issues and concerns on real estate investing and investment property management send directly to your email.
Join the community and like our social media network on Facebook, Google plus and Twitter page.
Ordiez Resources Inc, Where The Future Of The Real Estate Industry Begins, This Is How Tomorrow Moves In Real Estate Investing And Investment Property Management, Serving And Guiding Humanity. http://www.ordiezresources.com
Remember that opportunity to serve and guide is our greatest privilege and making our clients happy and satisfied is our greatest pleasure.
Hence when you Think real estate, Think Ordiez Resources Inc.
For Ordiez Resources Inc.