Realtor · Berkley MI · Member since 2018 · 28 posts · 13 votes
Hi guys!
My partner and I have been sending out direct mail for the past 3 months and we've finally found a deal (SFH). Comps are at $80k, seller wanted $60k and after negotiations we got the property under contract for $42.5k. The property is occupied with a tenant paying $750/month and the lease expires in one year. Since the property is occupied and we can't BRRRR, we've decided to finance with a conventional loan.
We found a lender that will take 15% down but they want $5,849 in closing costs for "Loan Costs" and "Other Costs". My understanding is that closing costs should be 2% - 5% of the value of the property.... this is over 13% which seems outrageous. The interest rate offered is 5.875% which is better than other lenders we've talked to, but are we being ripped off?
This is a reputable company that I found through Bigger Pockets, so what am I missing? Why is this so high?
@Caleb Heimsoth the last time I had it pulled it was 719. Also, what is the Homeowner's Insurance Premium and why are we paying that for $750 plus 4 months worth of homeowner's insurance for $475?
You should probably be around 5.375 if you had 740 plus credit and 50k plus loan amount. Since you don’t have either of those, you’re probably looking at around .25 added to your interest rate for loan amount and .125 for the credit score which puts you at 5.625 so that seems competitive to me. Where you’re not competitive is the points.
Also your appraisal seems high. Should be closer to 500, maybe lower. I could be wrong on that.
12 months for insurance premium is your first year insurance up front. The extra 4 months for insurance is for your escrow account. That’s normal. Your loan officer should be able to mention all of this for
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
7y
@Ellen Morrison you can’t go
Off closing costs being a percentage. That could be problem number 1. Second, if you post a break down of the actual costs we can tell
You better. It should be around 1000 in lender costs, then you’ll have taxes and insurance and title fees. I purchased 4 single family homes and my closing costs were averaging 4200 all in per each one. Also remember this can vary a lot depending on taxes and transfer fees and so forth.
Long story short just post the break down. Rate seems fairly competitive but could maybe be a bit Lower
Different lenders operate differently. Some charge fixed costs like $1000 to $1500 for property loan of $20,000 to $500,000; to cover costs like appraisal, inspection etc. There may be couple of origination points to under write the loan. Then the yearly or monthly interest rate.
Situations of personal needs various and who works best is based on circumstances like amount of loan and lenght of the time.
It is good to compare the total costs based on the length of your loan; and see what is more resonable for your specific needs.
My partner and I have been sending out direct mail for the past 3 months and we've finally found a deal (SFH). Comps are at $80k, seller wanted $60k and after negotiations we got the property under contract for $42.5k. The property is occupied with a tenant paying $750/month and the lease expires in one year. Since the property is occupied and we can't BRRRR, we've decided to finance with a conventional loan.
We found a lender that will take 15% down but they want $5,849 in closing costs for "Loan Costs" and "Other Costs". My understanding is that closing costs should be 2% - 5% of the value of the property.... this is over 13% which seems outrageous. The interest rate offered is 5.875% which is better than other lenders we've talked to, but are we being ripped off?
This is a reputable company that I found through Bigger Pockets, so what am I missing? Why is this so high?
2.5% of Loan Amount (Points) - $903 PROCESSING FEE - $895 WIRE FEE - $35 APPRAISAL FEE - $700 ATTORNEY DOC PREP FEE - $150 CREDIT REPORT FEE - $70 FLOOD CERTIFICATION FEE - $10 TAX SERVICE FEE - $76 TITLE – DOC PREP - $45 TITLE – LENDER'S TITLE INSURANCE - $306 TITLE – SETTLEMENT/CLOSING FEE - $525 TITLE – TITLE EXAM/REVIEW - $175
= $3,890 LOAN COSTS
Recording Fees and Other Taxes - $60 Transfer Taxes - $366 Homeowner's Insurance Premium (12 months) - $750 Prepaid Interest ($5.81 per day for 10 days @ 5.875%) - $58 Homeowner's Insurance - $62.50 per month for 4 mo. - $250 Property Taxes - $79.16 per month for 6 mo. - $475
2.5% of Loan Amount (Points) - $903 PROCESSING FEE - $895 WIRE FEE - $35 APPRAISAL FEE - $700 ATTORNEY DOC PREP FEE - $150 CREDIT REPORT FEE - $70 FLOOD CERTIFICATION FEE - $10 TAX SERVICE FEE - $76 TITLE – DOC PREP - $45 TITLE – LENDER'S TITLE INSURANCE - $306 TITLE – SETTLEMENT/CLOSING FEE - $525 TITLE – TITLE EXAM/REVIEW - $175
= $3,890 LOAN COSTS
Recording Fees and Other Taxes - $60 Transfer Taxes - $366 Homeowner's Insurance Premium (12 months) - $750 Prepaid Interest ($5.81 per day for 10 days @ 5.875%) - $58 Homeowner's Insurance - $62.50 per month for 4 mo. - $250 Property Taxes - $79.16 per month for 6 mo. - $475
=$1,959 OTHER COSTS
Total = $5,849
So it doesn’t look egregious. Next question is what’s your credit score? If you have 720 or 740 plus you should be paying less or zero points. Interest rate is high for those points.
Realtor · Berkley MI · Member since 2018 · 28 posts · 13 votes
7y
@Caleb Heimsoth the last time I had it pulled it was 719. Also, what is the Homeowner's Insurance Premium and why are we paying that for $750 plus 4 months worth of homeowner's insurance for $475?
@Caleb Heimsoth the last time I had it pulled it was 719. Also, what is the Homeowner's Insurance Premium and why are we paying that for $750 plus 4 months worth of homeowner's insurance for $475?
You should probably be around 5.375 if you had 740 plus credit and 50k plus loan amount. Since you don’t have either of those, you’re probably looking at around .25 added to your interest rate for loan amount and .125 for the credit score which puts you at 5.625 so that seems competitive to me. Where you’re not competitive is the points.
Also your appraisal seems high. Should be closer to 500, maybe lower. I could be wrong on that.
12 months for insurance premium is your first year insurance up front. The extra 4 months for insurance is for your escrow account. That’s normal. Your loan officer should be able to mention all of this for
Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes
7y
Your processing fee is a junk fee, especially when you also have a settlement closing fee and a title exam fee and an attorney doc prep fee. Ask If they will waive it. They might, or look elsewhere.
The appraisal looks high, but I never bought in your area, so maybe its ok.
You are paying a lot in points for your interest rate, but I know nothing of your credit risk.
BTW, off topic, did you know you are only getting title insurance for the loan/lender, not for yourself? You might want to rethink that! That is worth the cost!
Realtor · Berkley MI · Member since 2018 · 28 posts · 13 votes
7y
@Caleb Heimsoth I'm sure he will, he's been great to work with so far- I was just really surprised by the estimate. Other companies told us closing costs would be no more than $3,500 for a loan this small, so I was not expecting it to be almost $6k. I appreciate your help, I understand it a bit better now.
@Caleb Heimsoth I'm sure he will, he's been great to work with so far- I was just really surprised by the estimate. Other companies told us closing costs would be no more than $3,500 for a loan this small, so I was not expecting it to be almost $6k. I appreciate your help, I understand it a bit better now.
Most of it is in line but your interest rate is to high, and you’re paying too many points.
Check out US bank if your loan is above 35k. They charge 770 processing fee, that’s it. Then appraisal of about 500. You can see it would likely be cheaper.
Realtor · Berkley MI · Member since 2018 · 28 posts · 13 votes
7y
@Caleb Heimsoth wow that's awesome, I will definitely check them out! If they will let us do a 15% down payment the loan will be over 35k... if we have to put 20% down it will be under. Thank you!!!
@Caleb Heimsoth wow that's awesome, I will definitely check them out! If they will let us do a 15% down payment the loan will be over 35k... if we have to put 20% down it will be under. Thank you!!!
They’ll do 15 percent down but that may vary on loan amount. I did 15 percent down last summer with them but my purchase price was 55k
Loan Estimate and it looks like you put that up already. I guess you could ask to have the points lowered but everything else looks within normal parameters for an investment property. Your rate seems high, but your loan amount is low so there's a hit for that.
The other fees like taxes and insurance you can't do anything about those. The lender takes additional months to because they will pay your taxes and they want a pad. When you refinance again you get that pad back but have to put up reserves again, so it becomes a wash.
Escrow and title do the same work no matter how big or small the loan amount is. In the future if you use the same title and escrow you might be able to make a deal with them fees wise.
All and all this isn't a bad thing. You found a lender that can do the deal under 50k which is huge in this industry.
Realtor · Berkley MI · Member since 2018 · 28 posts · 13 votes
7y
@Shaun Weekes Surprisingly, they gave us the lowest rate out of all of the lenders I called... everyone else said it would be over 6%. Good to know that fees may be negotiable with Title and Escrow company, thank you for that!
My partner and I have been sending out direct mail for the past 3 months and we've finally found a deal (SFH). Comps are at $80k, seller wanted $60k and after negotiations we got the property under contract for $42.5k. The property is occupied with a tenant paying $750/month and the lease expires in one year. Since the property is occupied and we can't BRRRR, we've decided to finance with a conventional loan.
We found a lender that will take 15% down but they want $5,849 in closing costs for "Loan Costs" and "Other Costs". My understanding is that closing costs should be 2% - 5% of the value of the property.... this is over 13% which seems outrageous. The interest rate offered is 5.875% which is better than other lenders we've talked to, but are we being ripped off?
This is a reputable company that I found through Bigger Pockets, so what am I missing? Why is this so high?
15% down v 25% down is 2% of the loan amount in fees right there holding constant the rate, highlighting how silly it is to think of closing costs as a "fixed" percentage.
FWIW, if you borrow say $500k or so, the closing costs expressed as a percentage will drop down a bunch. :P
Loans below $100k or so aren't very profitable. Dodd Frank and CFPB are expensive mistresses to satiate with compliance costs, which naturally is passed onto you. Below $50k, the lender is losing money and most won't do it no matter what.
Chicago, IL · Member since 2015 · 97 posts · 55 votes
7y
@Ellen Morrison - To me, I wouldn’t count property taxes, insurance, and prepaid interest as closing costs. Those are just expenses happening up front. So if you exclude those, that is closer to the figure of “closing costs” that you were quoted. It’s tough for anyone to give a ballpark for those as there’s a huge swing if property taxes were paid last month coming due next month. I think of closing costs as loan expenses only + title + transfer fees/taxes. Just my two cents there.
Also, someone mentioned this, but closing costs as a % of purchase don’t hold up at lower purchase prices. Title work is essentially the same for a $50k or $500k house (other than the actual insurance policy cost).
Apartment Syndicator · Charleston, SC · Member since 2016 · 973 posts · 728 votes
7y
@Ellen Morrison closing costs are a cost to invest in real estate. Your fee breakdown doesn’t seem to be abnormally high. You should shop the deal to a few lenders so you can compare fees since the differ between geographical areas. Also, take a holistic view of the deal with all fees included and see if your numbers work to decide if the deal makes sense. Occasionally you might pay a little extra on individual items but if the deal works you might be ok with that decision. Good luck!