ASTRONOMICAL FHA 203K Closing Costs?

Question

Hi everyone. I am looking for help from those familiar with FHA 203K rehab loan closing costs. I received my loan estimate...

$95,000 loan total.  Almost $14,000  FOURTEEN THOUSAND in closing costs?! <--Does not include my 3.5% downpayment either. Is something wrong here?

This is my first live-in flip and first time dealing with any kind of FHA loan. Does anything here look askew? Renovations permits should = $0 (there is no permitted work being done). Are there things I can eliminate/reduce?

Charlie Fitzgerald · Answer

@Wayne Brooks is spot on Shannon.  The taxes are roughly a third of the total costs.  I would ask for an explanation for the title/settlement fees.  I don't see anything else that jumps off the page.  Congrats on getting your first deal going!

Charlie Fitzgerald · Answer

New York taxes in a real estate transaction are some of the most expensive in the country.  I told you to buy in Florida!  :)

Wayne Brooks · Answer

Title fees seem a bit high, but I'm not from there....$600 closing fee And $650 settlement fee, usually we have just one of those, $300-500. You got about $4800 in prepaid S and state taxes, E, F, G and your lender has no control over that.

Cara Lonsdale · Answer

Keep in mind a few things.  First, you are financing your MIP ($1,640), so while that is listed there, it usually comes back on the first page as part of the loan.

Also, you have over $3700 in prepaids and escrow set up.  These are to pay for your hazard insurance and taxes when they are due, and to set up your escrow account.  So, while those seem like wasted fees, they are more like pre-paid expenses.

Your taxes seem high, and I would question the transfer tax.

If this is an FHA 203K, I don't see any hold back or inspection fees for when you need to draw from the 203K.

I would push back on the supplemental origination fee.  They are already charging you points.  I would ask what that is for unless THAT is where they are putting the inspection fee to release your 203K funds.

Kody Veit · Answer

@Shannon K. I am looking into my first 203k loan as well and am seeing the same issue. The high closing costs almost defeats the purpose of the low % down payment which is the whole attraction of the FHA loan... How did your deal end up panning out for you? Did you find a way to reduce the closing costs / did they end up costing as much as the estimates? Was it worth it?

Shannon K. · Answer

There's so much equity in the house after I fix it, I think I'm gonna bite the bullet here and pay the closing costs and maybe I'll use a zero % card for additional funds....

Shannon K. · Answer

I only needed the lender to fund the required health and safety rehab items deemed necessary by their inspection. All cosmetics and updates I can do myself with my construction guys. That's the budget it's cutting into... The pretty stuff that'll get the house to appraise nicely next year :)

Michael Enriquez · Answer

I'd definitely shop around for those title services. Those are just their estimates.

You mentioned the closing costs eating into your rehab budget. Wasn't the purpose of getting a 203k loan to have the lender fund the rehab?

Shannon K. · Answer

Well this is really going from bad to worse...  I thought I'd be smart and ask about receiving a "lender credit" for the closing costs by taking a higher interest rate.

Though an increased interest rate would cost thousands more over a 30 year loan, I'm planning on living here short-term (less than 5 years) so a lender credit to cover closing costs would make sense I'd say.

Lender said NO! Not on a FHA 203K program.

I budgeted 5% for closing costs thinking that was an over-estimation compared to the 2-3% I see everyone else paying... 14.3% closing costs on a $95K loan is asinine and going to eat up half my rehab budget if I have to bring that much to closing. Now I'm stuck :( I'm not going to be able to do this if I only have half the cash available that I needed for a complete rehab.

Wayne Brooks · Answer

@Shannon K. Yes, but you'll notice most of those fees are not based on the purchase price, so on a $300k purchase the total costs wouldn't be that much more.

ASTRONOMICAL FHA 203K Closing Costs?

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