Did I get decent financing on this deal???

Question

I am buying a SFH for 35000.

Here is what kind of financing I got from the bank.

4.8% interest NOO
20% down ( I was told 15% but in the end it was 20%)
Origination fee     $750.00
My charge for this interest rate    $280.00
No MIP since I put 20% down
I need to show six months reserve on this house and two months reserve on my other house.
Plus all of the normal closing fees...

I didnt think that it was that good of a deal at first but it dosen't look too bad any more.. Thoughts? Opinions?

Travis Elliott · Answer

Hi Brian

I only have a little time so I will make it short

The house has a second bathroom on the upper level... It needs to be completely redone including running new water lines. I may rent it as a 3/1 instead of a 3/2. I am not a plumber or a flooring guy and I dont want to pay a ton to have it redone.  At any rate it will rent for $600.00 and my PITI payment is only $215.00. As far as a sales price I am sure it would sell dor fifty to fifty five.

It is nice to see another Montana boy as well.

Travis

James H. · Answer

Travis,

I've done a lot of research and talking with mortgage companies regarding mortgaging small amounts like what you have done here and I'd say you did pretty good - probably about the best that can be done with traditional financing for such a small amount (relative to the amount financed for average home mortgages).

The closing costs you quoted are about the minimum (regardless of purchase price) if you are buying and traditionally financing a REO (as per my experience making offers on HUD homes), since the bank won't cover any of closing costs like a private seller would. That's the biggest challenge I have found in mortgaging such low priced real estate - high (relative to purchase price)entry fees associated with traditional lending even if the APR is low. In fact, it's VERY difficult to mortgage an amount below what you are financing because the various fees charged by the mortgage company start to become so high, as a ratio to the amount finance, that usury laws start prohibiting the loans as the mortgage companies will only reduce their fees so much. It basically looks like loansharking-as it was explained to me.

I think this is way better than what you were thinking about doing with credit cards. Hopefully the rent will make it so that the deal is good through and through.

I could find enough deals for that price where I live that I would jump right on that financing and still have positive cash flow. I paid cash for my first property recently and financed the rehab on Visa and an unsecured LOC, but might do something similar to what you are doing here on the next deal just to get into property number 2 a little quicker. I couldn't do that with number 1 because it was just too small of a purchase ($12K).

Does the house need any work? What are the rent comps? Sales comps? Just curious.

By the way, I grew up much of my childhood outside Kalispell, Montana. My dad is still holding onto 20 acres of what is left of the family forest. Always cool to see someone from Montana - don't see it too much.

Nathan Emmert · Answer

Closing costs do sound high... on a $72,000 home I think mine are going to run around $1,300 when I close in 2 weeks.

Granted, I got 5.75% over 20 years with 25% down so you're financing terms are much better.

I had heard 5% was about the best you could do NOO for 30 years with 25% down.  Can you give us a list of the closing costs you're paying?

Chris Masons · Answer

hi travis,

deal sounds not bad at all. is the reason for showing reserves due to you having 4+ properties in your name?

thx,
chris

Travis Elliott · Answer

I just got my final figures and my total closing costs are 2660.00

That seams very high to me.

Travis Elliott · Answer

35000 I put 7,000 down or twenty percent

Dick M. · Answer

How much did you borrow? I didn't think a bank would make $35K loans, If they did I'd jump on that deal for myself...