Closing costs $9305 on a 108000 cash out!!

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Closing costs $9305 on a 108000 cash out!!

Jason Keating
Rental Property Investor · West Point, VA · Member since 2016 · 12 posts · 7 votes

This seems excessive to me. Cash out is at a small local credit union. They said this is what they account for and anticipate so it may change. What are your thoughts? What can I negotiate down? Rate is 4% on a 30 year. ARV is 145000 tenants in place on a 1 year lease. rents for $1000 a month property is in a rural area in Virginia. Purchased for $51500 and put $19000 into rehab.

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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
5y

You can see right on the form, the loan is costing you $6591, not $9300. If this is your first loan I would ask the banker to go over it with you. Anyone borrowing $100k should understand what they are doing/signing. 

The only irregular charge I see is the first one. The 2% in points. That’s usually a fee to lower the interest rate, but 4% on a 30 year is already high. So maybe they are $2k too high, but only if someone else will offer you a better deal. You have 45 days from the time this first lender pulled your credit to apply at other lenders without hurting your credit. 

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  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    5y

    @Jason Keating what is your credit score? Is this a Fannie/Freddie type of loan?

    1Reply
  • Jason Keating
    OP
    Rental Property Investor · West Point, VA · Member since 2016 · 12 posts · 7 votes
    5y

    730 credit score. No it is not a Fannie or Freddie.

    0Reply
  • Jason Keating
    OP
    Rental Property Investor · West Point, VA · Member since 2016 · 12 posts · 7 votes
    5y
    Originally posted by @Andrew Postell:

    @Jason Keating what is your credit score? Is this a Fannie/Freddie type of loan?

    Forgot to tag you.

    0Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    5y

    @Jason Keating, others may be able to answer your question, but I reckon a bigger question is:  How do you intend to get say $180k's value out of the circa $100k you'll have to play with?  Congrats on such a good cash out approval so far.  Cheers...

    2Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    5y

    You can see right on the form, the loan is costing you $6591, not $9300. If this is your first loan I would ask the banker to go over it with you. Anyone borrowing $100k should understand what they are doing/signing. 

    The only irregular charge I see is the first one. The 2% in points. That’s usually a fee to lower the interest rate, but 4% on a 30 year is already high. So maybe they are $2k too high, but only if someone else will offer you a better deal. You have 45 days from the time this first lender pulled your credit to apply at other lenders without hurting your credit. 

    10Reply
  • Jason Keating
    OP
    Rental Property Investor · West Point, VA · Member since 2016 · 12 posts · 7 votes
    5y
    Originally posted by @Bill B.:

    You can see right on the form, the loan is costing you $6591, not $9300. If this is your first loan I would ask the banker to go over it with you. Anyone borrowing $100k should understand what they are doing/signing. 

    The only irregular charge I see is the first one. The 2% in points. That’s usually a fee to lower the interest rate, but 4% on a 30 year is already high. So maybe they are $2k too high, but only if someone else will offer you a better deal. You have 45 days from the time this first lender pulled your credit to apply at other lenders without hurting your credit. 

     Thanks bill, 

    I've done a few VA's and a few IRRL's but no conventional cash outs. I was looking at the totality of the closing. Neglecting the fact that this is part of the true cost seems the same as using a stated rate and discounting the APR. 9305 seemed high to me and I wanted to see if the numbers stated were the norm.

    1Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    5y

    Yeah. The other $3k is just taxes/fees and prepaids. If you have time try a couple other lenders. The 2% points and a 1% origination combined seems a thousand or two high to me. 

    5Reply
  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    5y

    @Jason Keating

    The 2points and 1point origination fee is what is killing you.  The prepay/escrows should be a "wash" since its a refi --- you'll get your current escrows back...

    Just remember that many of the fees do NOT scale with the size of the loan.  Thats why the brrr method originially plans to purchase with cash.

    I suppose 4% on an investment loan is about rights.  Its just over 1% more I believe...

    Shop around.  If you want a referral to my lender send me a direct message.

    3Reply
  • Jason Keating
    OP
    Rental Property Investor · West Point, VA · Member since 2016 · 12 posts · 7 votes
    5y
    Originally posted by @David M.:

    @Jason Keating

    The 2points and 1point origination fee is what is killing you.  The prepay/escrows should be a "wash" since its a refi --- you'll get your current escrows back...

    Just remember that many of the fees do NOT scale with the size of the loan.  Thats why the brrr method originially plans to purchase with cash.

    I suppose 4% on an investment loan is about rights.  Its just over 1% more I believe...

    Shop around.  If you want a referral to my lender send me a direct message.

    This was an all cash purchase and rehab was out of pocket. Can I negotiate not paying escrow? because I currently pay the monthly insurance and taxes out of pocket.

    0Reply
  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    5y

    @Jason Keating

    Its possible not to have an escrow.  But you will need excellent credit and probably at least 20% to 25% down.

    Certrainly there are advantages to not escrowing.  But, just realize its not really a "cost."  Its a pre-pay.

    If you consider Cash to Close as the sum of the Prepay/escrows and closing costs, you want to minimize your closing costs.  

    That being said, this is just an estimate....  Its a refi so you already own the house and are paying for some sort of homeowner's insurance, right?  Well, then your policy is already payed up for the year....  You won't need the upfront 1 year of premium like a new purchase.  Are they even using your actual insurance premium price?

    Again, along the lines of it being an estimate, the $150 for the appraisal recertification is a cya in case they need to run the appraisal again...

    Hope this helps.

    0Reply
  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    5y

    @Jason Keating if it's not Fannie/Freddie money that means it's a commercial loan.  Getting a commercial loan with a 30 year fixed is really good.  And the points/fees associated here with a commercial loan would be reasonable.  

    2Reply
  • Anthony KingPro Member
    Investor · Charlotte, NC · Member since 2020 · 236 posts · 247 votes
    5y

    @Jason Keating section A is the stuff you can negotiate or have removed.

    2Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    5y

    @Jason Keating

    I think most people on this thread missed the part about this NOT being a Fannie Freddie loan.

    No, the fees are not excessive.  Here's why:

    • Number one and most important, this isn't a Fannie/Freddie loan.
    • Your new interest rate is 4% on a 30 year fixed  (Cash out on a 30 year fixed, Fannie/Freddie is pushing 4% these days with their .5 point adverse market fee)
    • Keep in mind, with the protection of a GSE, you'd still be getting hits to your rate for cash out, investor, adverse market and a state adjustment
    • It's only 3 points on a commercial loan with very low "junk" fees.

    You should be thrilled.

    Stephanie

    4Reply
  • Raymond J. RodriguesBusiness Member
    Lender · Miami, FL · Member since 2017 · 1k+ posts · 797 votes
    5y

    @Stephanie P., thanks for shining some light on this thread. This is a stellar rate for a non-conforming loan. You will almost always be charged points up front if you are going non-conforming/commercial, unless, it's fitted into the rate. 

    [email protected]619-456-8311
    Helm Mortgage Corp.5125 Reviews
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    1Reply
  • Julee FelsmanPro Member
    Lender · Portland, OR · Member since 2018 · 163 posts · 136 votes
    5y

    @Jason Keating Any reason you're going non-conforming? 

    All the notes above from @Stephanie P. and @Andrew Postell are spot on -- not too bad for a commercial or portfolio loan. But can you go Fannie/Freddie instead?

    I just pulled pricing up for term that align with what you described above and with slightly lower costs and got a note rate of about .5% lower that you've been quoted (assumed 730 fico, single family, investor, cash back, 75ltv). Alternatively the rate you've been quoted would be closer to 1.4% in points with about $1300 in other lender fees. 

    And the closing costs vs. prepaids has been covered well above, but I can resist adding my two cents... I find it useful to think of closing costs as “that” costs and prepaids as “when” costs.

    The closing costs are “that” costs are things that you pay because you are refinancing. They wouldn’t happen if you weren’t refinancing. When making a cost/benefit analysis of a refinance for a client I always focus on these costs. 

    The prepaids are “when” costs. These things that you would pay whether or not you refinance, but the timing of when you pay them is impacted by setting up a new loan -- these are taxes, insurance and interest. You’ll pay a month of interest at closing – this interest takes the place of a monthly payment (you’ll skip the next payment after you closed). If your new loan has an escrow account, you'll also make a deposit to set up a new “escrow” for taxes and insurance at closing.

    You don't have an escrow current, of course, because you own the property free and clear. If you did, the new escrow would just be replacing your old escrow account (the balance of which is generally refunded about three weeks after closing). In your case, you can just think of setting up the escrow as getting ahead on costs you would have been paying out of pocket, down the line, when taxes and insurance next come due. 

    Julee

    [email protected]503-799-3711
    4Reply
  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    5y

    The costs and fees outlined in this closing statement are pretty consistent with what I have seen from BRRRR deals I've done here in CT over the years. No red flags there.

    Whether or not they will let you forego escrowing funds is very much lender specific. I’ve had portfolio members require it and others not even offer the option. 

    1Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    5y

    any bank can do un-escrowing loan but they typically will increase the rate.

    Agree with others if it's non Fanny Mae thing then 2% origination seems normal, but I don't know why you don't take conventional for such a low value refi.

    2Reply
  • Gary L Wallman
    Rental Property Investor · Beavercreek OH · Member since 2018 · 422 posts · 970 votes
    5y
    Originally posted by @Jason Keating:

    This seems excessive to me. Cash out is at a small local credit union. They said this is what they account for and anticipate so it may change. What are your thoughts? What can I negotiate down? Rate is 4% on a 30 year. ARV is 145000 tenants in place on a 1 year lease. rents for $1000 a month property is in a rural area in Virginia. Purchased for $51500 and put $19000 into rehab.

     Jason,

    This is why, I believe, leveraging properties is overrated. I know a lot of people on Bigger Pockets believe all bank costs are paid by your tenants. I do not.

    These closing costs/prepaids represent 9 months rent out of YOUR pocket on a measly 108k loan of which you'll receive an even measlier 99k.  All this for the privilege of paying 4% interest to a credit union that will pay you less then a quarter of that rate when you deposit the money in your share account.

    I'd keep my paid off house and start saving for the next one in a carbon copy of your first. You'll be able to save super quickly with the whole cash flow from your current rental and not just a few hundred left over after paying your new mortgage for 30 years!

    Respectfully,

    Gary

    2Reply
  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    5y

    @Gary L Wallman

    Agree to a point.  For a $100k loan the costs for the loan are proportionally very high.  When investing in a market with higher price points, leveraging is much more powerful.  After 30 years you get the $100k back vs. say getting $300k to $400k..  But I'm in NJ  :)

    0Reply
  • Gary L Wallman
    Rental Property Investor · Beavercreek OH · Member since 2018 · 422 posts · 970 votes
    5y
    Originally posted by @David M.:

    @Gary L Wallman

    Agree to a point.  For a $100k loan the costs for the loan are proportionally very high.  When investing in a market with higher price points, leveraging is much more powerful.  After 30 years you get the $100k back vs. say getting $300k to $400k..  But I'm in NJ  :)

     David,

    Absolutely agree. Higher priced properties with good appreciation potential need to be leveraged for obvious reasons. Unless your starting out as a multimillionaire, you'd exhaust your funds very quickly.

    In Jason's case though, he was able to capture 1k a month rent on a 70k all in home. 9k in closing costs represents one eighth of the funds needed to repeat his original deal.  Way to much proportional cost, IMO.

    Buy the way, I am originally from New Jersey. Born in Summit and lived in Elizabeth, North Plainfield and West Orange way back before your real estate exploded. Still have a sister in New Providence. Homes there are priced like they're built out of gold, nut lumber. Though lumber is trying to catch gold, in terms of price, LOL

    Gary

    0Reply
  • Casey Powers
    Las Vegas, NV · Member since 2018 · 403 posts · 474 votes
    5y

    Buying down the rate with 2 points, another 1% origination fee, prepaids (insurance tax etc). It adds up.

    If you will have 20% equity you should not necessarily have to pay all those prepaids through the lender and could pay insurance and property tax separate. They will still have to be paid obviously so the costs don’t go away.

    0Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    5y

    Not going to re-state what has already been said, but will make an observation. 

    Lender costs on this $100k cash out rental property loan are about $5k (for reasons already discussed).

    Do a similar transaction on a $800k loan in Oakland or a $400k loan Sacramento, and it'll be like $5500 or $6k, respectively. The "per transaction" costs barely scale up, that needle barely moves.

    Ponder economy of scale for just a moment.

    On the loan origination side of things, my flat per loan overhead cost (compliance with gov't rules/regulations is a big part of it) is ballpark the same if it's a $100k loan or a $500k loan. Guess who ultimately pays that flat per-transaction overhead cost of "compliance" nonsense, one way or another (hint: not me).

    But, sure, chase those $75k dumpster fire SFRs in rural mid-America by focusing purely on cap rate and cashflow....

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