203K Closing Costs too high????

Question

First time home buyer here. Purchasing a home with a 203K and my closing costs are 35K???? Can anyone take a look at this. I’m in underwriting and this doesn’t feel quite right. I went through a broker and the lender gave us credit to nix the broker fee.

Seller isn’t helping with closing costs, but this still seems insane! Don’t have a realtor since I know the seller. Credit is about 690. Already paid the consultant $800 to come to the property.

Paul Welden · Answer

@Nathan Grabau

The contingency reserve is required on all Standard 203k's ... it's non-negotiable (Reference HUD SFH 4000.1).

I don't think 203k's are a ripoff for people who don't have all the cash/resources available to do extensive renovations. And the $45k in closing costs you refer to factors in a lot of costs that are typically rolled into the loan and not "out of pocket" expense.

Flipping is not permitted on 203k's ... So, I seriously doubt @Jeannie Nelson is doing that.

Hope this helps!

Alan Lacey · Answer

I think you have a few folks commenting not familiar with 203k or how a lender has to disclose costs on Loan estimate. Believe that contingency amount required on 203k your broker fee offset by lender credit which is just a difference in how brokers have to disclose. You have draw fees and a bunch of other stuff plus costs on the LE include setting up the new escrow which will be same regardless of lender, and same with the ufmip fha charges. You could

Looks at lender that offers Fannie home style as those costs less but at your score rate would be higher.

Paul Welden · Answer

@Jeannie Nelson

The closing costs seem reasonable for a 203k because it factors in your ~$20k contingency reserve for the rehab, but the broker fee of $6691 is expensive! But that's because you selected a mortgage broker instead of a direct lender and thank goodness for the lender credit to offset it.

And you have an ~$8700 transfer tax that is NOT required in every place in the country.

The LE appears to be reasonable for a 203k, IMHO.

Wayne Brooks · Answer

@Jeannie Nelson Well, you’ve got about $19k in “non typical closing costs”....$6700 for a broker fee, since you didn’t go direct to the lender, $8700 transfer fee which is typically paid by the seller, but you offered to pay it, a $3500 permit fee, which is not a closing cost, it is a construction costs, plus whatever closing costs you are paying for the seller.

So...you’re really at about $20k which of course includes your prepaying of tax insurance, which is not really a true “closing expense”, but a prepayment of monthly expenses.

Jon Martin · Answer

Looks like they are hitting you up for ~$20K in "contingency", which contractors usually build into a quote for if/when they come across unforeseen problems in the course of a reno. Assuming that's what that is, it looks like they are expecting you to frontload that with cash. Also looks like a ~$7k fee specific to doing a HUD loan/project in your state.

Nathan Grabau · Answer

I would try to talk your lender out of taking a contingency reserve or have it lowered. Are you planning on flipping the property? If you can figure out how to keep the current owners on title there might be a way around the transfer tax.

I personally think that 203k loans are a rip off. If you have 35k to put down on the loan, you could probably find a hard money lender that does not tack on 45k in closing costs.

Jeannie Nelson · Answer

It’s an elderly family member selling the property so we agreed on a selling price and offered to cover all of his costs…but it still seems ridiculous and like the lender/broker are trying to get over. Which part of this loan estimate seems too high? What would you recommend?

Nathan Grabau · Answer

This is insanely high. 203k closing costs should be around 3-6% of a loans value, so 22k on the high end. You also have upfront mortgage insurance and a monthly payment with it.

Ironically, you probably could have hired a REALTOR© and paid for typical closing costs for a 203K loan, and it would have still been cheaper.

This is probably an important lesson for other people as just because you know the seller, or think you are a good negotiator, it does not make you a home buying expert. And I am putting my money where my mouth is, I am a  REALTOR© but I still use and pay one on my out of state transaction.

203K Closing Costs too high????

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