Is this normal Or am I getting ripped off?

9 Replies

I just got home from the bank, went to sign papers and go over everything before closing. 

detail.

single family rental  - buying for 40k with 20% down - conventional loan 30yr fixed

buyer agreed to pay 3% in closing = $1,200

Here is the break down of the loan

Purchase price                    $40,000

Estimated Prepaid Items     $1,717.35

Estimated Closing Cost       $2,478

Discount                               $560

total                                      $44,755.35

Seller pays 3%closing        $1,200

Loan amount                       $32,000

Cash To Bring at Close         $11,555.35

I got quoted 5.375% for the loan rate, then i agreed to pay $560 to drop it down to 5%

Is this normal for the rate to be this high? I was looking at rate online and it says 3.8% but being an investment I expected it to be higher but not over 5%? Is this normal or is the bank trying to get more out of me?

I credit is, 749, 733, 758

Debts 

$546 mortgage fixed 30 years

school loan $171 fixed as well

Income $2800 monthly 

If more info is needed, i am more than willing to provide. Is this normal for this type of deal? Is the $11,555.35 too much to bring to the closing?

Sorry its my first deal and I am kinda nerves. 

Banks on small loans like this usually charge higher rates and with only 20% down the interest rate is higher.

Not a lot of lenders will even do a loan below 50k. If you were putting 25 or 30% down the rate would likely drop some but the benefit of a few shaved basis point versus 5 to 10% more down doesn't seem worth it.

Better might be to keep that money for reserves for unexpected future costs with the property.

Did you talk to the bank prior to accepting them as the bank for the loan? When shopping around and you tell them what amount you want to finance, the other things like where your credit stand, they should still be able to give you a ball park % rate. I shop often between a few prior to choosing one but I also have a lender that I used the last 2 times whose processing fees are in line (others charge more) with what I'll pay.

Originally posted by @Joel Owens :

Banks on small loans like this usually charge higher rates and with only 20% down the interest rate is higher.

Not a lot of lenders will even do a loan below 50k. If you were putting 25 or 30% down the rate would likely drop some but the benefit of a few shaved basis point versus 5 to 10% more down doesn't seem worth it.

Better might be to keep that money for reserves for unexpected future costs with the property.

ok I see, I was just unsure. She did say it was a very small loan

Originally posted by @Daria B. :

Did you talk to the bank prior to accepting them as the bank for the loan? When shopping around and you tell them what amount you want to finance, the other things like where your credit stand, they should still be able to give you a ball park % rate. I shop often between a few prior to choosing one but I also have a lender that I used the last 2 times whose processing fees are in line (others charge more) with what I'll pay.

 yes, i talked to them about 6 months ago when i got pre approved. she estimate 4.85 at the time

Originally posted by @Senad Salihovic :
Originally posted by @Daria B.:

Did you talk to the bank prior to accepting them as the bank for the loan? When shopping around and you tell them what amount you want to finance, the other things like where your credit stand, they should still be able to give you a ball park % rate. I shop often between a few prior to choosing one but I also have a lender that I used the last 2 times whose processing fees are in line (others charge more) with what I'll pay.

 yes, i talked to them about 6 months ago when i got pre approved. she estimate 4.85 at the time

6mo is a long time. Rates do change and for that length of time I'm not surprised. The closer you get to purchasing you should  keep in touch to see if their rates change. 

Originally posted by @Senad Salihovic :

 You can always check with banks in the area in regards to what rate they might have.

@Senad Salihovic 5% is a perfectly reasonable rate.  My last couple of loans have been 4.8%.  A good measure is to look at the average 30 year Freddie Mac rate for the week, then add .5% to 1.5% to that to give you a pretty good range of what to expect on an investment property.  I typically pay .75% above the average for my loans.

Also a sub $100k loan is going to be charged a premium.  It takes them the same amount of overhead to service your $32k loan as it takes to service a million dollar loan, so they need to make up some profit someplace.

Russell Brazil, Real Estate Agent in Maryland (#648402), Virginia (#0225219736), District of Columbia (#SP98375353), and Massachusetts (#9​0​5​2​3​4​6)
301-893-4635

It really is a decent rate and it'll be the norm to have 5% rates this time next year. You do have a very small loan, banks don't often like lending under $50k.