Small loan = Higher closing costs?

[Michael Greer]

Hello,

I'm purchasing three 1b / 1b condos in a good area here in Ohio.

I'm financing through a bank and received my final closing disclosures on one of the units.

Purchase price is $40k. 

Loan is $32K.

Closing costs are $3600, not including the $700 appraisal and $450 homeowners insurance I had to pre pay.

$3600 closing costs on a $32k loan?

Is this reasonable? 

[Doug Smith]

That's one of the reasons we can't/don't do loans below $100K. There are fixed costs to us and variable costs to us as lenders. You mentioned a couple in your question. It costs me roughly the same amount to process a $10,000 as it does a $100,000 loan. I have to pay the processor per file...not based on a % of the loan. The appraisal is the same cost. You get the idea. Few of the costs are variable, which skews the fees charged as a percentage of the loan. Regulators look at loan fees as a percentage in most instances, so as we get down lower we can actually be in violation of regulatory rules such as usury simply because of the fixed costs. I would have to see the settlement statement to truly pick it apart, but small loans will typically have a much, much higher cost as a percentage of the loan than larger loans due to the fixed costs that are involved. I hope that helps.