Are these closing costs fair?

Question

Hi Everyone,
I found this forum after deciding to get into the rental house business part-time.  What a great place to learn about all aspects of the business.  Thank you in advance for your feedback, comments and ideas.

I'm in a bit of a pickle.  I've made an offer on a SFH, it was accepted, and the option period just finished.  The purchase price is $76K and the mortgage is $60.8K.  The mortgage broker has now sent me a Loan Analysis Worksheet with a breakdown of the closing costs.  I feel that the closing costs are high and I WOULD LIKE YOUR OPINIONS.

My credit score is excellent and have no other debt than my primary residence.  I am in Dallas.

Here are the closing costs:

CC related to the Loan:
Origination fee - $608
Processing fee - $375
Underwriting fee - $850
Attorney Doc Prep fee - $125
Administration fee - $275

CC related to Title Charges:
Settlement fee - $350
Closing Agent Delivery fee - $50
Tax Certificate fee - $44
Lender's Title Insurance - $175
Title Policy Endorsements - $250

CC related to Government fees:
Recording fee - $120

CC related to Miscellaneous:
Survey fee - to be determined
Application (appraisal + credit score) fee - $590

Total closing cost is $3,812 or 5% of the purchase price.

Prepaids are separate.

Thanks very much.  Appreciate your help.

Steve Babiak · Answer

The difference between rate and APR is an indicator of "how expensive" the loan processing is.  The 0.7% difference shows that this is an expensive loan.  Find a loan with a lower APR, and you will probably end up with a more reasonable closing cost amount.

James H. · Answer

I agree with Mitch. I have shopped around mortgages for loans in the 50 to 60K range and the  closing costs for a HUD home typically worked out to around 3000-3500, including the survey. Once you get below about 100K, or so, there is not much difference in closing costs, though. If fact, that is *one* of the reasons why mortgage lenders don't like to loan on lesser amounts - so, if you want a mortgage for, say, 25K, you can't find it because A)lenders don't want to waste their time on a trivial amount and B) they would have to lower their fees (which they will not once they get to a certain point) or else they would be subject to usury laws regarding high fees relative to loan amount.

If you are bidding on a HUD or REO, those fees need to be considered because the bank won't negotiate

Account Closed · Answer

Thanks for the comparison, Tyson.  I thought $2600-2800 seemed more appropriate as it would put it in the 3.5% range of purchase price I've seen mentioned in this forum.  Am going through a broker so don't know who the end lender is.

Tyson S. · Answer

I just closed a loan for very close to the same amount.  My closing costs were:

Origination - $1227
Appraisal - $495
Credit Report - $20
Title services and title insurance - $750
Tax Service Fee - $75
Consultant Fee - $430 (loan was a purchase + rehab loan, this is the fee for company that services the rehab draws).
Government Recording Charges - $143

Total = $3140

Without consultant fee = $2710.

I would say that you are getting overcharged.  Mostly in fees from the lender.  Who is the lender?

Account Closed · Answer

Thanks Mitch,
The rate is 4.6%, which works out to an APR of 5.3%.  Is that a great rate for the expense?

Thanks for the idea, Greg.  Will try to talk to someone at Bank of America, my bank, tomorrow, just get some comparison.

Greg P. · Answer

Sounds high.  Why don't you try to shop around?  I'm sure there are plenty who will give you a great deal, and will be able to close within a month.

Mitch Kronowit · Answer

It looks high to me. They're basically charging you over $2,000 just for writing the loan, which is high as a percentage, but then again a $60,000 loan is about the same amount of work as a $500,000 one. They better be giving you a great rate for the expense.

Are these closing costs fair?

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