So I was given these numbers by my lender that set me up with my pre-approval letter:
Purchase Price - 350k
Down payment - 5% = $17.5k
Closing cost = $14k
Location of unit - Montgomery County, MD (zip 20874)
Is $14k closing cost in this location normal? It seems a bit too excessive.
@Brandon Turner in all his webcasts usually only puts $3k towards this expense and I has expecting mine to come in the same ball park. Should I look for another lender, or is this the norm? I was totally not expecting to be paying so much in closing for a unit at this price point.
My credit score is very good, not sure if that is a factor in the calculations.
Would appreciate some words of wisdom and direction from seasoned REIs.
Seems high, are you using hard money?
Whats the taxes and insurance on the property?
Did he give you a loan estimate?
I think @Brandon Turner on his analysis mostly uses properties about 100K or less; once in a while bit higher for duplexes. So if the closing cost is 3% of the purchase price then yours should be about 11K. So 14K is in the neighborhood.
On the other hand, let's check your number's! If your numbers are right. Based on the numbers, does the deal makes sense? If Yes, then just ask and see if you can get some fee's waived or reduced.
One mistake I did on my real estate journey is looking at the whole pie. The best practice is to look at your piece of the pie; If you are happy with your slice then go for it.
If this includes prepaids, then yeah this is the right ballpark. I usually estimate 3% for closing costs in the area plus prepaids.
You will also find that lenders will often slightly over estimate costs, then they will drop on the final, because if they underestimate they can be in for some doo doo.
Also theres going to be some variance here based on lender fees, first time home huyer recordation tax discount, whether or not you buy owners title insurance, if its in an hoa...hoa transfer fee.
It depends on lender costs, closing costs that are customary for the area, purchase price, and loan size.
For instance on smaller properties like this you can have sometimes 6% closing costs in some cases depending on deal structure.
Some of my commercial client deals for 10 million properties closing costs and fees might be 100k to 125k so 1 to 1.25%. In scale things can get smaller as a percentage as they cost just a little bit more. The same can be for smaller deals sub 1 million as they can be more expensive to buy.
Some states I have seen 10,000 recording fee on 1,500,000 property and other areas 500. You have to really drill down on the fees ahead of time and assume nothing or you could be in for a big surprise.
this is an owner occ loan correct ? without some sort of break down its hard to say.
but as others have stated there could be pre paids in there as well which is not a cost of the loan per se.
@Everest Jordan i have done two refinances this year and both were 10,000$ i closing costs. one property loan was about 200k and the other was about 190k. for me, funding escrow was costly. i’m guessing it’s same for you. Either way, for your purchase price, 14k sounds about right.
I just bought a $60k investment property last month.
20% down- $12,000
Closing cost including prepaids and transfer taxes- $5,700.
$17,700 total on a $60k property.
@Everest Jordan My places are in Canada, so I can't comment on the amount (other than $14K is a lot of money). Ask for a break down from your lawyer. There could be a state purchase tax (we have provincial property purchase tax in some provinces, but not others) or property taxes (if they were just paid by the seller, you will need to reimburse them for the remainder of the year, again depends how it works down there). Either of those could add a big chunk of money.
In Toronto for a $500,000 property you are playing $12,950 on the land transfer tax alone..
Guaranteed a huge chunk of that is east coast property tax prepaid.
I close in an LLC now, without escrow of taxes or insurance. No prepaids for those for me. Of course, semi-annual taxes have to come out of my pocket, and could be due within a few weeks after close.