How high shoukd closing costs be?

Question

Hey guys, I’m closing on my first property next week. I just got my disclosure forms and saw that my closing costs are right at 8k. The purchase price is 135k, I put down 10k using a conventional loan with 3.5% interest. Does 8k seem a little high? They estimated $5,700 in the beginning.

Jeremy Z. · Answer

@Jesse Aaron

Did the current owners lie about the square footage, or were they just mistaken? I think that is an important distinction. Owners don't typically lie when claiming a building is smaller than it really is (although I suppose there could be circumstances where that would be the case). Could be a good opportunity if the additional square footage isn't being accounted for.

As for the closing costs, keep in mind that the percentage is often higher when dealing with lower priced properties. Many of the costs don't scale linearly, so the percentage of the purchase price will typically be higher when dealing with a $100,000 property vs. a $300,000 property. That said, $2,300 is a significant increase over the "worst case" $5,700 estimate. You might consider running it by another lender (whether you can switch at this stage is a separate topic, but the information would at least be useful). Six-percent is definitely on the high side, but it could be typical for a higher risk profile, especially in that lower price range. If certain costs seem out of line or are significantly higher than originally reported, ask for an explanation and push back if you aren't satisfied.

Russell Brazil · Answer

Sounds like you have an unscrupulous lender who purposefully underestimated title costs. What some shady lenders do in their estimates is they list the cheapest title company fees jn the state, would could be hours away, to make their estimates look lower than their competitors.

Jesse Aaron · Answer

@Jeremy Z.

But I guess my inquiry is if it’s normal to be so high. I was expecting 5k or so. In fact the lender said the 5,700 was a worst case scenario🙄

Jesse Aaron · Answer

@Jeremy Z.

The increase came from the title company and a $550 nonrefundable deposit to the lender that wasn’t discussed. The title company estimate was way off and the insurance was way off because the current owners lied about the sqr footage. They claimed it was 1,600 when it’s actually 2,700.

Jeremy Z. · Answer

Did the original estimate of $5,700 include a breakdown? If so, it should be fairly easy to pinpoint which costs increased and determine if the increases are reasonable.

One common way for closing costs to increase is if the closing date changes. Closing earlier in the month will often require pro-rated increases for taxes, insurance, etc, but that alone probably doesn't explain an increase from $5,700 to $8,000.

Jesse Aaron · Answer

@Guifre Mora

Ok. I guess it’s right around the 6% then. Just seems high. I guess that’s something to consider when saving a down payment.

Guifre Mora · Answer

The average, refinance closing costs range from 3 percent to 6 percent of your loan amount (again, depending on your location and your lender).

How high shoukd closing costs be?

Most Popular Reply