Know the Costs Beyond the Loan When Buying an Aircraft

Similar to other large purchases, there are costs associated with buying an aircraft.  One of the primary advantages of using AOPA Finance as your finance broker is that we do not charge a fee for our services. As a member of AOPA, our aircraft financing services are included as part of your membership. The other costs associated with an aircraft loan include lender closing costs; title and escrow fees; aircraft broker’s fee (if you use an aircraft broker); pre-purchase inspection costs; CPA/legal fees to correctly set up the ownership structure and understand the tax liability of aircraft ownership; and in some cases, aircraft appraisal fees.

All lenders have closing costs, which typically range from a few hundred to a few thousand dollars. The amount varies from lender to lender, and is often determined by the size of the loan and the aircraft type. In the case of piston aircraft loans, closing costs are  usually a flat, fixed fee. Turboprop and jet closing costs tend to be a percentage of the loan. Lender closing costs are intended to cover things like  documentation, processing and aircraft valuation costs.

Whenever a loan is customized, plan on the closing cost being customized too.  Loans customized for specific situations often don’t have the benefit of using standard documentation or processes, so the cost structure is likely to be different.

Most lenders require an escrow company to handle the transaction.  This means performing a title search, preparing and filing the FAA documentation to transfer ownership, and handling the transfer of funds on the day of closing.  It’s not uncommon for an escrow company to find a “cloud” on the title.  A “cloud” is something that wasn’t filed or recorded correctly and could jeopardize the lender’s lienholder interest in the aircraft.  Once you have decided to purchase a specific aircraft, it’s a good idea to engage escrow to make sure there won’t be any delays in your closing due to title concerns. Members of AOPA can receive discounted escrow and titles services through Aero-Space Reports Title & Escrow Services.

The use of an aviation title and escrow company provides protections and assurances to both sides of the transaction, so it’s common for the cost to be split between buyer and seller.  Having accurate documentation filed correctly with the FAA is good for all involved, so be sure to include the cost of escrow in your negotiations.

Many people find it helpful to use an aircraft broker to help find the right aircraft for the mission and assist with negotiating the details of the purchase.  If you use an aircraft broker, it’s very important to establish upfront what the fee structure is.  It could be a flat fee, a percentage of the sale price, or a combination of both.  Have this discussion up front and make sure you get the cost in writing.

It’s also important to remember most of these fees cannot be rolled into the loan amount.  Although lenders will sometimes roll their own closing costs into the loan, the ancillary costs associated with the purchase are paid separately.  So, while you are in the planning stages of your purchase, be sure to plan for the standard 15%-20% down payment and the additional costs for services required to complete the purchase.

And that’s before taxes. While the FAA does not charge sales taxes on aircraft, many states do, and each state handles taxes in their own way.  In most cases, states that do have taxes associated with aircraft transactions are going to find a way to collect, regardless of how you structure the ownership or where you take delivery. We highly recommend reaching out to your CPA or financial planner to make sure that you’re making smart moves when it comes to the structure of the ownership and the intended use of the aircraft.

Important caveat: Lenders, CPAs, and attorneys don’t always see things the same way. It’s important to understand what your structure is going to look like before you secure financing, so you can communicate that clearly to the lender.

For additional guidance on aircraft ownership structures, AOPA Pilot Protection Services. “PPS”, staff can assist members. If you have PPS as part of your membership, you have access to our legal services plan and a nationwide panel of aviation attorneys. That’s a great place to start.

The right aircraft financing starts with the right partner. AOPA Finance combines competitive rates, access to multiple lenders, and knowledgeable, responsive representatives who understand aircraft financing. Whether you’re buying or refinancing, we’re here to help you find the financing that fits your needs. Call 800.62.PLANE (800.627.5263) or request a quote online to get started.