Do These Closing Costs Look Correct?
Hello!
I am currently in the process of purchasing my first multiunit house hack in the Philadelphia area. I am using a 3.5% down FHA loan and have received a loan estimate on a property. The property is $425,000 and the loan estimate says my closing costs will be $22,922. Is this right for the Philly area
or is this extremely high? When watching Brandon evaluate deals he's usually around $7500 in closing costs for this price range of a property.
I have added a picture of the loan estimate for clarification.
Please let me know and all answers are appreciated.
It looks correct to me, I just bought a multifamily using a FHA loan and the closing costs were pretty high as well. Philadelphia is an expensive market compared to where Brandon usually finds deals (from what I've heard on the podcast) so higher taxes and higher insurance costs add to that as well. You can ask for a seller's assist in the future to help with the closing costs, I got 3% for mine.
Yeah, I just bought a duplex in Philly, and my closing costs were shockingly higher than Brandon’s estimates. Philly taxes and fees are pretty damn high.
Yup closing next month on my multifamily and it was pretty similar. Philly market is crazy. Definitely accurate. Try to get sellers assist
Do you all have any recommendations or more information on sellers assist? Thank you!
@Austin Mullen you can potentially get sellers assist after the inspection. If the inspection comes up with any issues you can ask the seller to drop the purchase price saving you a few thousand.
@Jack Perfett - I actually think your costs are lower than they should be. I know that's not what you want to hear but in looking at the estimate, your transfer taxes are only calculated at 1%. Philly/state transfer tax is 2.14% on each side. Unless the seller is paying the other 1% for you or it's different for FHA, that I'm not sure. You also need to pay the remaining year's worth of taxes up front so that can be quite a bit depending on the property and it adds up especially when your taxes are $5k.
Again, not sure who prepared this for you but you might want another set of eyes on it so there's no more surprises. Your agent should be able to help.
As @Stacia S. mentioned this is actually low if the property is in Philadelphia due to the transfer tax (2.14% on your side as the buyer, 2.14% on the seller side). There is no transfer tax discount for different loan types or for first time buyers. Most suburb municipalities are at 1% although there are some 1.5% transfer tax ones . Also I would estimate closer to $1500 a year for Homeowners Insurance, especially on older stone/brick buildings. Most local lenders do have an origination fee in the $1000 ballpark. Title policy cost is only dependent on the sale price and if you get a standard coverage policy or enhanced, otherwise it does not vary from one title company to the next. The soft costs like notary fee, doc prep etc. will vary slightly from one title company to the next.
I typically don't view escrows, reimbursements and prepaids as "closing costs" for property analysis sake of a long term rental because these are costs you owe as part of the annual and monthly cost of ownership, not transactional fees. They are just collected in advance at settlement to establish your "piggy bank" escrow account for the future payments. They are out of pocket costs owed at closing though so it is important to know them and factor them into your cash outlay.
@Austin Mullen I've structured my seller's assists with my offer for the property. You would make an offer at x price with % of seller's assist. For example if the offer price is 475K and you ask for 3% seller's assist, it would give you $14,250 toward's closing costs. Lender's do have a maximum allowable seller's assist so I would check with them prior to your offer. I have also given a slightly over asking price in order to save out of pocket money at closing to get the seller to agree to the assist.
In addition to the above, be sure to look at the break out of the costs, not just the ~$23k in "costs" and $7.6k of money down...
I know people keep singing the praises for FHA loans, but you still have have Mortgage Insurance fee which is $7k for you. Sections G and F for escrows and prepays are really costs directly tied to the transaction/sale. The prepaids are just cost of homeownership that they want to make sure at least the first payments are made. The escrows are set aside of your money to pay the taxes and insurance. So, its really not an actual cost, its a cashflow issue.
As for a seller assist, or as I'm used to calling it a seller concession, you usually address that upfront with your offer. You should know ahead of time whether you have enough cash to close. If anything, your lender should make sure of that when preparing your mortgage pre-approval. The loan officers that don't are doing their jobs in my opinion. Usually the max concession is 3% of the purchase price, but sometimes its as high as 6%. Check with your lender as it varies slightly by loan product. Just becareful of how much you ask assuming you increase the price so that the seller nets what they want (or what you are really offering). The main catch of doing a seller concession is that the property has to appraise. This can be a double edged sword as sellers sometimes get miffed when they realize that the property appraised for more and think that they could have sold for more...
Good luck.
That notary fee is ridiculous unless the notary is traveling to your house for settlement. Sounds like they are expecting to charge a fee per page rather than a fee per document.
And as others have already stated, the transfer taxes are too low. The real number might shock you. Hopefully you aren't buying a HUD foreclosure where you would have to pay 100% of the transfer tax.
@Stacia S. @John Knisely
I’m sorry I should have been more specific. This property is in Montgomery county so the transfer tax is 2% (1% paid by buyer, 1% paid by seller) I just double checked with my loan officer and he referenced me to the state website that had the transfer taxes for each county.
@Danielle Du Plooy @Austin Mullen @David M.
If money is of no issue for covering the closing costs would you still recommend pursuing the assist or do you think it’s better to just pay the closing costs out of pocket.
Thank you for the responses!
If money is no issue, why bother with the loan! :)
Again, its a matter of your investment goals and strategy. Investing/finance would tell you to maximize your leverage since this is the only type of investment where leverage is "good." This also helps preserve your capital. However, the larger payment will go against your dti, however small. Not sure if you are tight on your dti.
Just be careful you don't make the seller skittish by asking for a seller's concession, and make sure the property appraises and/or you tell the seller you can still close, but you you just want to wrap as much as possible into the loan.
Hope that helps.
Just because some one did it one way, it doesn't mean you can do it that way too... the taxes here are high and it has you paying your MIP up front. But frankly, who cares, does the deal make sense with these numbers is a better question?
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@Jack Perfett I personally like seller's assist because it's less money out of my pocket at closing and more for a reserve fund and to start saving for my next investment. Meanwhile if I give asking price or slightly higher in an offer price, that will be over 30 years in my mortgage which will be paid by tenants anyway. (When I've offered over it was only 5K not enough to threaten the appraisal with my deal.) It has been a win-win from my experience but it also depends on the deal.
@Jack Perfett Get a Costco executive membership and enjoy the lowest closing costs in the country!!! The have the best banks in the US.
@Jack Perfett when most people discuss closing costs they are referring to actual loans costs. I wouldn’t let that throw you I. That the loan estimate requires lenders to include prepaid funds for escrows etc. as you are using fha you also have the ufmip as a pretty substantial cost even thought it is financed.
@Ryan Giblin do they finance investment properties, or just primary residence?