buying costs excessive?

25 Replies

I'm calculating costs on a potential deal and got a loan estimate from a conventional lender.  It seems the buying costs are way excessive to me.  What do you think?

loan amount: 80000

Origination charges:

3pct points: 2400

processing fee: 850

underwriting: 300

Services you cannot shop for:

appraisal: 510

credit montoring service: 7

credit report: 15

flood determination: 11

flood life of loan: 5

life of loan tax service: 55

tax certification fee: 18

services you can shop for:

title search: 225

lenders title policy: 531

closing fee: 550

title survey: 400

title examination fee: 150

taxes and prepaids: 

recording fee: 207

transfer taxes: 1107

Home owner's insurance: 1740

property tax: 257

Optional:

title owner's policy: 140

total: 10059

So 10000 bucks on an 80000 loan?  wth?

Seems excessive to me.  what can I cut from this by shopping around?  Are these costs what other investors are seeing?  

This is a 20 pct down loan btw.  So I'd be paying 100k for the property.  

I have everything as far as financials too.  Monthly income, excellent credit, plenty of cash reserves.  Work history.  

I could go pull my last hud1 statement from a couple years ago in the same county but that was for a personal residence and much higher loan amount.  

The 3 pts is the only thing that seems high. When you have a low loan amount, the fixed costs are going to create a high closing cost percentage as compared to the loan amount.  Just because the loan amount is low doesnt mean the title attorney, or the appraiser, or the surveyor etc, are going to drop their prices.

The homeowners insurance seems high too - but at this point, it’s just an estimate and will be based on what policy/company you decide on.

Originally posted by @Jason D. :
3 points for a conventional loan seems excessive but everything else is about right. Are you prepaying interest?

not that i'm aware of.  I don't truly understand what half these fees are.  

850 for processing?  

not sure what the difference in a title search and title exam is?

flood determination, flood life of loan, lif of loan tax service?

Agree the 3 points seems high, like you are buying down the interest rate a quarter point or so.
The title search is a “report” of events.
The title examination is an interpretation/evaluation of that report.

I'm not sure what flood life of loan and life of loan tax service is, but you're talking less that $100 so I wouldn't put too much thought into that. The processing fee is probably fees to process paperwork, gather all the info they need etc... pretty standard stuff. The 3 points would be bothersome if you're not prepaying interest. Conventional loans rarely have points, I've even been credited points on loans. More than 1 point I would question

so 225 to report the events and 150 to interpret the results of that report?  

Seems like paying a carpenter to hang a door and an additonal fee to measure the opening.  \

How does one make any money on transactions less than 200k if it costs this much just to buy the property?  

It throws my numbers way off and turns a potential deal into not a deal at all.  

The formula that gets promoted alot is estimating 2-3 pct for buyng costs correct?  As it stands this constitutes 11 pct of loan amount, 9 pct of the purchase price.  

Structure your deal so some of the closing costs are wrapped into the loan.  You can do this up to 2% as long as the property appraises. Instead of $100k purchase price, pay $102k with $2k seller paid closing costs.  Sellers net stays the same, and you have wrapped some of the closing into the loan to reduce your out of pocket expenses.

On a low priced property....this is always going to be the case though. I estimate 3% for a normal priced property, but on a very cheap property, that amount is going to increase significantly. 

Originally posted by @Elvis Vasquez :

Have you looked at SOFI or Earnest? 0 fees no origination.

https://www.biggerpockets.com/forums/50/topics/524797-100-000-unsecured-personal-loan-with-sofi 

 wow, never heard of that, but I'll be looking into it because I think they could be a good option for me.  

Originally posted by @Jeremy England :
Originally posted by @Elvis Vasquez:

Have you looked at SOFI or Earnest? 0 fees no origination.

https://www.biggerpockets.com/forums/50/topics/524...

 wow, never heard of that, but I'll be looking into it because I think they could be a good option for me.  

 our best kept secret :)

I hate dealing with HMLs only issue with SOFI/Earnest/Upstart/Lightstream is that you must have good credit 740+ (unless you're making over 100k then you could probably get loans with a 680 CS).

Your loan explanation will be to be used for rehabbing not for the purchase of real estate.

Feel free to email each other lender with their quotes.

SOFI gives out 7 year terms - Earnest 5 however this is more focused towards people who have capital and not enough income.

I'd go with Earnest first since they also factor in your cash reserves - SOFI does not.

@Jeremy England the 3 points seems high, I would shop the deal to another bank.  4 months ago I got a single family rental financed with no points at 4.5% on a loan amount of $52,000.  keep in mind that those prepaids (home owners ins. and property tax) aren't really "cost of the loan" expenses, yes you will be paying it up front but it isn't costing you any extra because you already factored those costs into your monthly expenses.

I've never borrowed from a hard money lender, what fees are typically involved?  

Do they do an actual appraisal or is it based on a bpo?  Do they charge the same miscellanous fees that this lender is nickel and diming me for?

I could be wrong but this all seems out of wack.  My closing costs have averaged 4200 all in.  Now the loan amount is smaller but if you prorate it to a 80k loan it would be around 6k.  So 10k for a residential loan seems very excessive. 

I typically expect around 5k

Originally posted by @Caleb Heimsoth :

I could be wrong but this all seems out of wack.  My closing costs have averaged 4200 all in.  Now the loan amount is smaller but if you prorate it to a 80k loan it would be around 6k.  So 10k for a residential loan seems very excessive. 

I typically expect around 5k

Ok, so the lender is trying to charge 3550 in origination charges, and then consider the prepaids are 1997 (which most would come back to me when I sell),  so that would put this loan more in line with normal.  The lender is the problem.  

yeah unless you have bad credit that’s extemely excessive.  I’d expect more of 1-1500 in origination fees 

Those numbers seem way off. I just walked out of a closing two hours ago.

Description Debit Credit
Purchase price 89500.00
Deposit (Earnest Money) 1000.00
Loan Amount 85900.00
*Other property as collateral
Prorated 2018 Taxes 559.66
Title Charges
Closing Protection Letter 12.50
Comp Endorsement 12.50
EPA Endorsement 12.50
Lenders Title Ins 487.50
Owners Title Ins 182.75
Recording of Deed 16.00
Escrow Closing Fee 50.00
Termite Inspection 85.60
Totals 86759.35 87459.66
Check to me at Closing 700.31

This was a bit of a special one since I was using collateral, but when I’ve put 20% down I was seeing roughly the same results, with the exception of needing to cut them a check for the 20%.

I would be looking for a new bank and title company.

So I looked into Sofi and got approved for 100k, 7 year personal loan at 8.6 pct.  

This is a better option than the conventional lender referenced above for sure.  I'll have to compare it with some other lenders.  for this particular deal it would decrease buying costs and cash outlays, but nearly double holding costs since the loan payment would be like 1600/mo.  Conventional lender I come out of pocket for 25-30k to get the property.  This would mean I come out of pocket zero and the cost of closing would be equitable to an all cash deal

Assuming I carried the property for 6 months before being sold or refinanced, that's like 10k in debt service, however since you are paying principle, nearly half of that gets deducted from the original 100k  Making the loan payoff approx 97k vs 100k.   

@Jeremy England

I've made that work, albeit on a smaller scale. One thing to make sure of if you're looking to refi is to take into account that your credit will take a hit as the loan is unsecured, and your DTI will look pretty rough because of the payment amount. I'd advise talking to your refinance lender first. I would think you could get around most of those problems by signing a letter from your lender that promises to payback the personal loan with the proceeds from the refi.

Originally posted by @Chris Lohmeier :

@Jeremy England

I've made that work, albeit on a smaller scale. One thing to make sure of if you're looking to refi is to take into account that your credit will take a hit as the loan is unsecured, and your DTI will look pretty rough because of the payment amount. I'd advise talking to your refinance lender first. I would think you could get around most of those problems by signing a letter from your lender that promises to payback the personal loan with the proceeds from the refi.

 That's a good point.  I recommend anyone with a capital one account sign up with credit wise.  It allows you to place speculative numbers in as far as debts, late payments, etc etc to deterimine what it would do to your credit score.  

I purchased a duplex in Indy last year for 80k, 20% down and my closing costs were $6,700.   The biggest problem is the size of the loan. On smaller loans like these the percentage ratio will be so much higher than that of say a 200-300k loan.

That said, you could stand to save a few thousand by shopping a mortgage broker that can run your credit once, and shop you against several companies products to find something that fits best. Just make sure you research the brokers BBB, reviews, etc.


Best of luck!

@Jeremy England I just got a quote on a conventional loan yesterday. Most of your fees seem reasonable, but the 3 points for origination fee are very high. What interest rate and loan term is this for?

Here is the four options I was given:

1.

25% down

5.25% fixed rate for 30 years

No origination fee

2.

25% down

4.99% fixed rate for 30 years

0.875% origination fee

3.

20% down

5.49% fixed rate for 30 years

No origination fee

4.

20% down

5.25% fixed rate for 30 years

0.875% origination fee