Understanding Closing Costs

[Alex Furness]

Hi everyone,

First time house hacker & brand new to RE Investing here! Looking to purchase my first duplex in the greater Philly area over the next 6 months or so. I've started seeing some properties and also received a few loan estimates from different lenders.

I'm looking at FHA loans for financing and was a bit surprised at some of the closing costs (40k total cash to close), wanted to ensure these were normal?

For instance, looking at one of the estimates for a $400k purchase price, here are a few of the line items:

Total PITI: $2,624 per month

2.75% interest

Transfer taxes: $17k

Lender's Title Insurance: $2,712

Mortgage Insurance Premium: $6,755

Appraisal Fee: $770

Homeowners Insurance Premium: $3,000

There are just a few of the bigger ones.. I was expecting the $14k down payment but while I am in a good financial situation the total cash to close seems a bit high to make financial sense. My objective overall was to reduce my monthly "rent" (Income-expenses) to somewhere around the $500-$700 dollar mark. 

Are all these costs normal or are there ways around this, perhaps talking to other lenders? Any input is greatly appreciated!

[Rich O'Neill]

Yes Philadelphia transfer taxes are crazy high, hence the $17k. Generally that is split by the buyer and seller though, so you would likely only pay half of that, depending on the deal you structure. The total transfer tax rate in Philadelphia is 4.278% I believe, and customarily that is split in a standard on-market deal, but often buyer paid on off market deals. You could also be asking for an assist on the properties you are looking at, but you need to make sure your "offer price" is high enough to offset any assist if you want your offer to be accepted. 

Homeowners insurance seems high as well. Have you talked to an insurance agent about that number?

Like @Danielle Jackson said MIP seems a little high as well.