High Closing Costs- $6000 for sub $100k house????

Question

Well got some bad news today and I am trying to figure out some next steps. A lot of the properties in my area are sub $100k and I have been looking to flip or buy multifamily rent. Put a few offers in low ball, but finally found a flip I wanted to go all in on. Called my friend, who is a mortgage broker and pre approved me, to find out that for a $65k property it would be just under $6000 closing costs. The justification was that anything under $100k is going to be super high closing costs and seller can only cover 2% according to Fannie Mae... Am I the only one that thinks that is crazy high? That pretty much puts out any option to refinance in the future or make any big profits with any property under $100k.

Should I just take this number into account or should I hit the local banks? I am having a hard time justifying 10% of the purchase price for a closing cost.

Other recommendations? I don't have enough for cash purchases yet, but obviously the flip model could get me there soon.

Should I just take this number into account or should I hit the local banks? I am having a hard time justifying 10% of the purchase price for a closing cost.

Other recommendations? I don't have enough for cash purchases yet, but obviously the flip model could get me there soon.

Christian Wathne · Answer

I'd look for some other friends; 6k for closing its nuts. We're around 2%; even some of the fixed fees wont be very high

Chris Mason · Answer

Many closing costs do not scale up and down with purchase price in a linear fashion. If you buy a $1m home, closing costs may very well be down in the neighborhood of 1%-2% of the purchase price.

Most origination costs are flat, one in particular being CFPB and Dodd-Frank compliance costs. The vast army of compliance professionals that are now necessary get paid the same regardless of your purchase price or loan amount.