$5,971 in closing costs/fees on $36,000 loan?

[Robert N.]

Hello all, 

This is my first question posed on B.P.! My question is simple. I am set to close on a property this month (a triplex). The purchase price is $48,000 with 25% down ($12,000). So my loan will be $36,000. However, I was shocked to see the $5,971 in closing costs/fees! Watching Brandon Turner's videos, and according to the B.P. Calculator, I should estimate about 1.5% in closing costs...but my closing costs and fees are significantly higher (double digits). What am I missing or not understanding here? I am attaching a picture of what the loan company wants me to sign (which I haven't yet). Do these amounts look normal? Would you sign for this loan or just pay cash if that was an option? Thank you!

[Kyle J.]

@Robert N. You really can't use percentages to accurately estimate anything (i.e. closing costs, repairs, CapEx, etc) when you're dealing with these extremely inexpensive properties. Take repairs/CapEx for example. If you need to replace a 40-gallon water heater, or a 3-ton AC unit, it's likely going to cost you the same whether the house is a $40k house or a $200k house. It's not like some contractor is going to come along and say "Well my normal price is $5k for this AC unit, but since you only paid $40k for the house I'll only charge you $2k."

Same thing with these loan costs.  Most of them are just fixed costs regardless of the loan amount (except points, which are obviously a percentage of the total loan amount).  This is why they can seem so high relative to the total loan amount on these micro loan amounts (and one of the reasons many lenders won't even bother doing them). 

With that being said, I took a look at some of the individual charges, and some of them do seem a little high (i.e. processing fee, underwriting fee, etc).  However, not totally out of line.  Ultimately though, you may be limited in terms of not having a lot of options to shop a loan like this around.  You don't mention what market you're in, but I know where I'm at I wouldn't even be able to find ONE lender to do a loan this small much less MANY to shop around closing costs with.  So perhaps just consider yourself lucky that you did find one willing to even fund the deal because I've personally read countless posts on here from other users who weren't able to find lenders to do that.  And now just do what you need to do to close the deal. 

Good luck.