What percent should closing costs be on cash out refi of $140K

[Toben B.]

Hello,

I have 3 duplexes to cash out refi on. All are worth $200K. One is free and clear, one I owe $5K and one I owe $35K.

What should closing fees, points, appraisals add up to? I am seeing $7400-$8400 in closing cost options.  That is around 4.5-5.2% of the loan and seems crazy high to me. Where should these number be?

At 6.75 % - $7330

$4,329.00 Closing costs
$25.89 prepaid costs
$2,975.00 discounts which I assume is another word for points

At 7.125 - $6281

$4,329.00 Closing costs
$27.33 prepaid costs
$1,925.00 discounts/points

Do these look right?

Thanks in advance!

[Jon Puente]

Hey Toben,

Let me help you with this really easily, as you can break down closing costs into 4 main parts (for any loan):

A) Upfront Fees and Discount Points - This is charged based on the rate YOU choose. The lower the rate, the more expensive it gets.  The higher the rate, the less expensive it gets.  This is the only cost that is lender specific because each lender has different profit margins on loans.  Some might charge 2K in points for a 6.99%, while another might charge 0$ in points for a 6.99%. 

B) Appraisal and Misc Fees - This is typically anywhere from $500-$850 for any loan, does not matter the lender.

C) Title Company Fees - This will be fixed because its based on the title company you choose, not the lender.  If you want cheaper title costs, then select a different title company.

E-G) Prepaids and Escrow - This is based on what your taxes and insurance will be in your area, not the lender themselves.  If you want cheaper taxes and insurance, then find a property with cheaper taxes and insurance costs (like moving further from the city).

The only one that is going to vary (and sometimes drastically) is the upfront fees and points, which is all you need to know for shopping lenders.  Everything else is relatively the same. 

Great Question!

[Jay Hurst]

@Toben B.  How much of the closing cost bucket are third party title company fees? Those will be the same no matter who the lender is. 

The discount fee is a cost to buy down the loan rate which on a non-owner occupied, two unit, cash out will be relatively substantial and also depends on what credit score and loan to value you are trying to go to.  

[Ryan Stuckey]

Discount/buy-down points are discretionary to the buyer and should be zeroed out for an apples-to-apples comparison. Your closing costs should be more or less fixed and not a % of the loan size (same kind of work goes into most every loan approval). When you have an efficient deal using an investor-friendly lender, you will generally have a lump sum on the lender side for processing/underwriting of $1500-2500 and then on the title company (buyer-chosen 3rd-party) you will have various fees for a similar amount. So $3-5k at most to close a normal loan, closer to $3k actually, or you are getting soaked for fees by one or more parties. It's common, sorry to say. I prefer a strategy of fairness/success on the first deal that leads to more deals for all in the future.

[Jon Puente]

Hey Toben,

Let me help you with this really easily, as you can break down closing costs into 4 main parts (for any loan):

A) Upfront Fees and Discount Points - This is charged based on the rate YOU choose. The lower the rate, the more expensive it gets.  The higher the rate, the less expensive it gets.  This is the only cost that is lender specific because each lender has different profit margins on loans.  Some might charge 2K in points for a 6.99%, while another might charge 0$ in points for a 6.99%. 

B) Appraisal and Misc Fees - This is typically anywhere from $500-$850 for any loan, does not matter the lender.

C) Title Company Fees - This will be fixed because its based on the title company you choose, not the lender.  If you want cheaper title costs, then select a different title company.

E-G) Prepaids and Escrow - This is based on what your taxes and insurance will be in your area, not the lender themselves.  If you want cheaper taxes and insurance, then find a property with cheaper taxes and insurance costs (like moving further from the city).

The only one that is going to vary (and sometimes drastically) is the upfront fees and points, which is all you need to know for shopping lenders.  Everything else is relatively the same. 

Great Question!

[Stephanie P.]

Quote from @Toben B.:

Hello,

I have 3 duplexes to cash out refi on. All are worth $200K. One is free and clear, one I owe $5K and one I owe $35K.

What should closing fees, points, appraisals add up to? I am seeing $7400-$8400 in closing cost options.  That is around 4.5-5.2% of the loan and seems crazy high to me. Where should these number be?

At 6.75 % - $7330

$4,329.00 Closing costs
$25.89 prepaid costs
$2,975.00 discounts which I assume is another word for points

At 7.125 - $6281

$4,329.00 Closing costs
$27.33 prepaid costs
$1,925.00 discounts/points

Do these look right?

Thanks in advance!

Not all points mean the same thing.

Discount points are to buy the rate down.

Origination points are to pay the broker.

Our compensation for originating a loan is different than conventional lenders because everything we do is considered "Borrower Paid Compensation", but looking at the costs as a percentage of the total on a DSCR loan is not really the best way to do it.

I can only use my company as a gauge, but we charge 2 points on our loans. Big or small, high interest or low interest, we charge 2 points. That's just one way to keep the whole thing fair and easy to explain.     Now, does that 2 points always show up in the form of borrower paid compensation?  No.  Sometimes the 2 points is financed and sometimes we get yield spread instead of coming out of the loan proceeds, but all the time the borrower is somehow paying 2 points.  Do some companies charge more?  Absolutely.  Do some companies charge less?  Not many, but maybe.  Do some companies try to say they don't charge any points by hiding it in Lender Paid Compensation?  On conventional loans, absolutely they do.

The 2 points we charge doesn't come into play when it comes to discount points or lender points.  Those are to buy the rates down and are charged at the borrower's request.