I have a property under contract using a Fannie Mae Renovation Loan. When doing a soft assessment of the property I originally used 4% of the total cost of the property for closing costs. 2% of that being "transfer taxes". I found out that I am saving money purchasing a Fannie Mae home, since they are exempt from transfer taxes. The total cost of the loan is 180,000 principal with 35k added to its "required" renovation budget. I was planning on using my own funds for renovation, but apparently the type of loan I have requires a security of the renovation work being included in the loan.
So that puts my total borrowed money at 215,000. 4% of 215,000 is 8,600.
I received a rough draft of expected closing costs and total money due at closing which forced me to re-run different number scenario and loose profit.
Here are the numbers.
Renovation Allowance 34,500
Estimated Prepaid 3280.51
Estimated Closing Costs 9844.00
Total Loan Amount 171,600 (after 20% down is calculated)
Appraisal Update/ Inspection 800
Credit Report 85
Permit Fees 650
Title - Title Update 400
Title - Closing Protection Letter 125
Incoming Wire 30
Lenders Title Insurance 640
Settlement Fee 445
Title Search 200
Taxes and Gov Fees 525
Home Owners Insurance 12 mo 720
12 Mo Prop Taxes 1884
Title- Owners Title Insurance (opt) 315
TOTAL CLOSING 12,796
From what I have read, that seems high, especially since I am suppose to be saving 2% on transfer taxes. I talked to them about subtracting the pre-paids and not putting the property into escrow since I will be flipping the property. Add another 2% to that if I did indeed have to pay transfer taxes, and that's another 3,600 putting closing at 16,396. I understand the type of loan I have versus conventional That is over 7% on closing costs for the property if I did have to pay transfer tax. I budgeted for 8k originally and thought I would be saving money by avoiding transfer tax, but it looks like that's not the case. Can anyone offer any insight or tell me this is "normal". Would help me properly calculate closing costs for future investments.
As a general rule of thumb, no matter what the size of the deal is or the asset type, your closing costs will always come out between 2% to 2.5% of the purchase price.
When you say closing costs, that excludes transfer taxes, prepaids...stuff like that?
2.5% of 215,000 is 5375. Using that rule, I would be way off in estimating these costs...
I assumed when people say closing costs, they mean ALL costs. 2% is transfer tax alone by itself that is coming out of my pocket and must be accounted for as a "loss" when calculating profit.
I was using a 4% general rule and thought I would be okay with that and was surprised to see the estimated costs be so high. I'm just not sure if for investment properties it is normal to have closing costs near 7-8% range of total purchase price. It seems excessive and not sure if I should switch Brokers in the future.