Closing costs and lender fees are killing my deals

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Closing costs and lender fees are killing my deals

Joe Leonti
Carnation, WA · Member since 2016 · 7 posts · 2 votes

I am planning to purchase a duplex (or triplex). I am now working with a lender to get pre-qualified for a loan.  I wanted to find out what the real cost of a loan would be, so I am getting estimates.  Well, what happened to all the "low money down" purchases all these books are talking about ? I can't get anything under 20% down !  With the closing costs and lender fees, I am looking at needed to put 80K down on a 349K purchase with 10K in closing costs.  I have been researching this (real estate investing) for about 6 months and I am now getting down to actually looking for a piece of property.  I have a 795 + credit score and they are giving me a 4.75% loan Non Owner Occupied -  Any suggestions (other than find a new lender or find a cheaper property) ?  

Thanks -  

Shocked future investor

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Benjamin Timmins
Landlord · Utica, MI · Member since 2015 · 190 posts · 99 votes
10y

You can go for a FHA loan as long as the property has 4 or less units. FHA loans can be as low as 3.5 percent down. You do have to live in it for the first year though.

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  • Benjamin Timmins
    Landlord · Utica, MI · Member since 2015 · 190 posts · 99 votes
    10y

    You can go for a FHA loan as long as the property has 4 or less units. FHA loans can be as low as 3.5 percent down. You do have to live in it for the first year though.

    1Reply
  • Upen PatelPro Member
    Lender · Nationwide Lender · Member since 2015 · 1k+ posts · 814 votes
    10y

    @Joe LeontiFor an investment property you will have to put down 20% for SFH/TH/Condo and 25% for multi. The low down payment options are available if you are going to owner occupy the property.

    [email protected]571-200-6180
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  • Mike Wood
    Developer · New Orleans, LA · Member since 2015 · 1k+ posts · 898 votes
    10y

    @Joe LeontiIf you are not going to occupy the property, then banks will not be able to provide low down payment loans (all of those programs, as little as 3% with FHA, are for owner occupant loans). Most banks will not loan more than 75% LTV on 2-4unit houses, as they follow the Fannie/Freddie Mac guidelines.

    In order to do it with less money down, your going to have to look into creative financing, maybe seller caries a second mortgage, maybe you use the buy something that requires renovation and then refi to get some of your cash our (cash out refi's on 2-4 unit houses are typically max 70% LTV).

    Sorry to tell you, but you will need sizable down payments if you are using conventional bank financing.

    1Reply
  • Sarah Ziehr
    Real Estate Broker · Chicago, IL · Member since 2015 · 531 posts · 266 votes
    10y

    Its true, you need to plan to live in the property the first year or pay 20%. If you owner occupy, then you can put down as little as 3.5%- 5% may have better terms. You can also try negotiating seller financing on a property that is owned outright. 

    My question for you is what is this property cash flowing for currently? What is your NOI? What is your IRR? These are bigger questions to answer if you have the funds available to you.

    1Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    10y

    Find an owner financed deal with 10 to 15% down.

    Owner financed deal will usually not have as much costs to close as a conventional lender.

    Other than that put the 20% down or go and live in one of the units for an owner occupy loan with less down.

    You could also partner with someone on your property purchase. 

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  • Brian Fouts
    Investor · Fall City, WA · Member since 2013 · 200 posts · 63 votes
    10y

    Hey @Joe Leonti

    You're only four or five miles from me!  Are you acquiring this locally or somewhere further away?

    Yeah, buying a multi unit with traditional financing isn't cheap.  We have acquired a lot of properties using Owner Financing, Owner carry, lease options, etc.  Especially in this area where closing costs and excise tax can make traditional financing expensive.  If putting that kind of money down, I'd want a pretty good return on cash.

    A lot of the Low Down, Little Cash, advertisements are just that, ads.  I take all those with a grain of salt as they will always advertise or talk about the best of the best, not reality, which is where most investors will fall, especially starting out. 

    When doing cash deals, projects, etc., we typically invest in other assets outside of real estate for a better growth model (think small business purchases).  

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  • Joe Leonti
    OP
    Carnation, WA · Member since 2016 · 7 posts · 2 votes
    10y

    Hi Brian, I am looking in Sno County (lower property taxes, well just a bit). Property has gotten way out of hand here. So getting in with a small down payment on a 150K piece of property is very unlikely.  I did the small business thing for about 10 years. It was OK ...looking for investment to take me into retirement. 

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  • Joe Leonti
    OP
    Carnation, WA · Member since 2016 · 7 posts · 2 votes
    10y

    Mike,  

    Buying and fixing up a place by "forcing" valuation is a good idea. However by the time you purchase it, fix it up and refinance the costs of doing the loans could outweigh the increased value.  Closing costs, appraisal fees etc.  It appears the best way to do this is find a low cost area to buy in ? 

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  • Mike Wood
    Developer · New Orleans, LA · Member since 2015 · 1k+ posts · 898 votes
    10y

    @Joe LeontiI have to disagree with your assumption that buying and rehabbing is not worth it.  Lots of people of BP do exactly this, very successful.  I build new 2 family homes, but have looked into renovating and it is quite possible to get in the 15-25% equity range once complete and refi'd.  I thing most flippers goal is at least 30%.

    My loans have origination fee's of 1%, with other closing costs (less prepaid's) being around 1.5%. Assuming two closing costs are double that, your only talking 5%.  If you can not make more that 5% on the a buy and renovate, then something is wrong.

    1Reply
  • Joe Leonti
    OP
    Carnation, WA · Member since 2016 · 7 posts · 2 votes
    10y

    Thanks Mike - These are things I need to find out.  That is why I feel BP is SO VALUABLE.  I sold my house last year and am looking to re-invest the money in real estate.  I already have all the money I want in the stock market.  This is a diversification effort, I need to learn what is (fairly) 'typical" for loan fees etc.  I have not taken out a real estate loan for a few decades, so this process is still new for me, especially Non Owner Occupied.  I might just move into the place (I buy) and live there for 10- 12 months.  I am still trying to figure out the Pre-Paids part of this.  I am analyzing every fee and cost.  

    Thank you for your input.  Much appreciated.

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  • Brian Fouts
    Investor · Fall City, WA · Member since 2013 · 200 posts · 63 votes
    10y

    @Joe Leonti, when I was referring to small business, I was referring to investing in them, not operating them.  We have about 15 currently and most of those we have no involvement in.  When most people hear "small business" they think of it from the Owner/Operator side, which is exactly the opposite of how business investors want to acquire them.  

    We have three rehab projects wrapping up locally this month.  They are not my preferred investment model due to the time involved and return on time invested, but they are profitable and can be a good way to get some cash on cash returns quickly.  

    Pierce County is a good area to look for rentals and multi units.  Got to find the right area, but I know many investors that are doing very well right now in that County for buy and holds.  

    Stock market... bleh.  We have zero money there. 

    Our best cash flowing buy and hold real estate has been outside Washington state.  30 units in Memphis has been awesome for cash flow.  

    1Reply
  • Joe Leonti
    OP
    Carnation, WA · Member since 2016 · 7 posts · 2 votes
    10y

    You have a management company taking care of the Memphis Properties ?    I am heading to Nashville net month. Might look out that way (Knoxville or Marysville areas.  How do you like investing out of state ? and how do you manage the properties ?    I am also looking in the North Idaho area as well. It appears that area (there are pockets) that are still undervalued.  

    1Reply
  • Joe Leonti
    OP
    Carnation, WA · Member since 2016 · 7 posts · 2 votes
    10y

    Hi Sarah,

    Still trying to get all the calculations for ROI and the other indicators of possible profit or gains. There are many factors (income after expenses, appreciation tax right offs etc) It appears there are many ways to figure this out. My math is not as good as I would like it to. I am practicing doing this by hand so I understand what the numbers mean (each one). I am not about to make an investment of 40K - 50K or more and say....whoops forgot that expense. That is why I am posting on BP. Any ideas, methods or spreadsheets you can recommend ?

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  • Mike Hanneman
    Investor · Coeur d'Alene, ID · Member since 2016 · 551 posts · 218 votes
    10y

    I've been looking in North Idaho for a while now. Hard to find a good cash flow property. The rents here are low but home prices are high.  Not a good match.

    0Reply
  • Elliot Smith
    Investor · Vancouver, WA · Member since 2014 · 270 posts · 111 votes
    10y

    I am in the Vancouver WA market and have had success going direct to owner on the duplexes. I am routinely getting them around %65-80 of market value. Most of the time you do not want to go conventinol to start but you can refi them out in 6-12 months. The deals are there they are just not on the MLS.

    1Reply
  • Richard Scholtz
    Lender · Greater Seattle Area, WA · Member since 2015 · 80 posts · 57 votes
    10y

    @Joe LeontiI can't get anything under 20% down for NON OWNER! Joe - do not forget in WA rentals end up being meth labs...so lenders want a serious investment and 2-4 family units take 3x longer to sell than SFR units. SO YES...that is the minimum down for an investment property --- and FNMA who holds 75% of all the mortgage paper just upped that to 25% down for all 4 plexes. So get used to the 20%+ down.

    -----------------------

    I may suggest Boeing Credit Union for WA state they just did a non owner jumbo (770k) SFR for us for 4.25% and $500.oo in fees plus title and escrow. They are not allowing 10% down on rentals however so plan on 20% - 25% DP as per FNMA but they are great on NO FEES.

    There is only 1 credit union that still allows 20% down on multifamily units because they portfolio their loans and so did not go along with FNMA......and it took me 115 phone calls in Washington State to find them...so they are there if you look.

    We are a FNMA lender in WA so been doing this for 30 years in King County  so we would provide a Estimate if you care to contact us, but Boeing and Harborstone Credit Union is open to all WA residents and I recommend them.

    Travel well

    Richard

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  • Alex Franks
    Rock Hill, SC · Member since 2015 · 1k+ posts · 597 votes
    10y
    Originally posted by @Upen Patel:

    @Joe LeontiFor an investment property you will have to put down 20% for SFH/TH/Condo and 25% for multi. The low down payment options are available if you are going to owner occupy the property.

     Upen is correct ,other options but reality all these" GURUS" teaching no money down real estate.

    Reality is  the no money down does not work for 99% of deals out there. That's why most GURUS sells books, or courses , not real estate assets.

    Alex

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