Closing costs on an investment property loan.

[Rico See]

How much in closing costs on an investment property loan should I expect to pay? I'm closing on a turnkey in Memphis soon.

[Henry J.]

Rico See
I was given 4% of purchase price but not sure how accurate it is.
Depending on your lender so $ may vary.
$100k purchase with 25% down -
Origination charges -$1200
Appraisal- $500
Title + title insurance -1600
Recording fee + taxes -$600
Insurance - $??
Escrow - $??
Inspection/ pest inspection - $400
I'm sure others will chime in with lower prices but that's what I remember.
Good luck.
Henry

[Hadar Orkibi]

@Rico See are you going to have a loan?

if no then it could be around $1500-2000 depends on the costs you shop for. 

if you have a loan then you will have the ones above + Loan origination fees based on the amount of the loan, could be 4k-5k on 80k loan or 8-12k on 200k loan. 

Check this out:

https://smartasset.com/mortgage/closing-costs#H05z...

[James Wachob]

@Rico See congrats on your new investment! The key is to find a great team! Ideally you would find a company that has everything under one roof. Acquisitions team, renovation crews (fully licensed and insured), Property Management, and a Real Estate Investment Brokerage in case you ever decide to sell.

By teaming up with a solid firm you can mitigate your risk and have some "boots on the ground" that have your best interest in mind. 

[John Menton]

Rico See I was just quoted 11k closing costs from my credit union on a 200k mortgage

[Stephanie P.]

@Rico See

Closing costs that include points and fees depends on your particular situation and the lender/broker you choose.  If you're doing a 50K rehab, fix and flip, expect to pay a higher percentage than if you're purchasing a 300K property buy and hold.  

Stephanie

[Mariusz Bojarczuk]

I am buying a house for 62000. The closing costs presented to me are about 6000 dollars.

I was told that points are money as insurance for the bank that I will not sell property early, so they can keep getting mortgage for 30 years. Has anyone heard of that?

The processing fee is 1900. That is a high number. 

The bank wants me to pay the full downpayment although I already made earnest money deposit.

Could anyone help me? Why are the closing costs so high? The house is in Memphis. It seems like every charge is inflated. The bank gave me what they call “preliminary” closing disclosure which legally does not exist. I explained to the bank I signed this meaningless document for their convenience, so underwriter can get a bonus for higher numbers of closings. I was told the closing costs are basically set now.

Can anyone help? Aren’t closing costs supposed to be between 2 and 5 %

Mariusz

[Tom S.]

@Mariusz Bojarczuk Very high in my opinion. I closed on a $50k house here in VT and pulled up my HUD, and here's what I have:

- credit reporting fee $15

- flood zone determination fee: $25

- Documentation fee: $350

- Attorney fee (incl title search): $1,000

- recording fee: $150

- wire transfer fee: $40.

This does not include insurance prepayments, utility deposits, or items like that.  Maybe $500 for those. Hope that helps,

- Tom

[Mariusz Bojarczuk]

Thank you Tom,
I was very upset when I saw closing above 9% of the purchase price. I wrote to the bank and flatly refused to pay that unless I get a full breakdown of all charges. I also refused to pay points. I never heard nor found any explanation that this is bank’s insurance I will not sell property. They wan1.75% for points. I don’t need points.
thank you,
Mariusz
Originally posted by @Tom S.:

@Mariusz Bojarczuk Very high in my opinion. I closed on a $50k house here in VT and pulled up my HUD, and here's what I have:

- credit reporting fee $15

- flood zone determination fee: $25

- Documentation fee: $350

- Attorney fee (incl title search): $1,000

- recording fee: $150

- wire transfer fee: $40.

This does not include insurance prepayments, utility deposits, or items like that.  Maybe $500 for those. Hope that helps,

- Tom

[Mariusz Bojarczuk]

Can anyone help me with how to deal with a bank that charged me 9.5% of the purchase price in closing costs? This is way too much and they are not forthcoming with information as to why so much is charged.

What could possibly inflate closing costs so much?

I do not know what to do. Tell them to go to Hell and let the deal fall through or start a new loan with a different bank?

Mariusz

[Corby Goade]

Get quotes from different banks as you are shopping for a property. One thing people forget to take in to account, if we are talking about a quote related to a specific property, is that taxes, insurance, HOA fees and other misc fees are prorated into closing costs. You will be paying those expenses one way or another, so be sure to back those out when you are considering the actual cost to fund your loan.

[Stephanie P.]

Originally posted by @Mariusz Bojarczuk:

I am buying a house for 62000. The closing costs presented to me are about 6000 dollars.

I was told that points are money as insurance for the bank that I will not sell property early, so they can keep getting mortgage for 30 years. Has anyone heard of that?

The processing fee is 1900. That is a high number. 

The bank wants me to pay the full downpayment although I already made earnest money deposit.

Could anyone help me? Why are the closing costs so high? The house is in Memphis. It seems like every charge is inflated. The bank gave me what they call “preliminary” closing disclosure which legally does not exist. I explained to the bank I signed this meaningless document for their convenience, so underwriter can get a bonus for higher numbers of closings. I was told the closing costs are basically set now.

Can anyone help? Aren’t closing costs supposed to be between 2 and 5 %

Mariusz

Mariusz

It all depends on the type of financing you're getting.

Yes, $1900 is high for an owner occupied residential property, but it's not high for a non-owner, no income verification loan.

Points are not "money as insurance for the bank that I will not sell property early". That would be a prepayment penalty. Points are either for origination or discount (to buy down the rate).

Sounds like the bank was trying to get you a closing disclosure quickly to satisfy a TRID requirement. A "preliminary" closing disclosure would provide a date in their system.

They will not require you to pay the full down payment if you've already paid an earnest money deposit.  It could be that they didn't have the contract to back the deposit out of the down payment or someone just forgot to subtract it when they were doing the data entry.  It happens.

Your statement "I explained to the bank I signed this meaningless document for their convenience, so underwriter can get a bonus for higher numbers of closings." is ridiculous.  Underwriters have nothing to do with closings and get no bonus if a loan closes or just sits there.

My suggestion is walk away from this bank that frustrates you (and believe me, you frustrate them too).  Find a mortgage broker that you trust.  Talk to them and let them educate you about the process of getting a loan.  You'll feel better, have less stress and close easier.  

Stephanie

[Darrin Carey]

The closing costs can be broken down into categories, by who is charging them. Some of them are a flat cost no matter what the loan size is, and others are a percentage of the loan amount. I'll give you the typical ranges for a rental property loan in Ohio.

1. Title Company fees including the search, closing, recording etc, $750 should cover those.

--  Title insurance. In Ohio the cost is regulated by the state, but 1% of the loan amount will get you close.

2. Lender fees. Loan origination fees. 1/2 to 1 point depending on the the lender. 1/2 point is most common, sometimes I can get 0.

-- Discount points: Sometimes you can get a lower interest rate for the loan by paying some points up front.

-- Appraisal: $400-$600 for a single family

3. Mortgage Broker fees. If you used a mortgage broker, the fees have a wide variety. They could be paid by the lender and you'll see zero charge, and I've seen as high as 3 points on a rental loan. 1 point is pretty common.

4. Loan escrows: If your taxes and insurance are escrowed, you'll have to fund those accounts. Usually 2/12th of your annual insurance, plus enough to ensure the account has enough funds to cover the next tax bill plus 2 months reserve.

5. First years property insurance. Varies by property and location. $500-$1,000 covers a lot of rentals, but if yours is larger, or more expensive, or in a flood zone it could be higher.

6. Property Inspection: $500-$600 for a single family.

If it's a small loan, you may run into minimum fees that make the cost proportionally high to the loan amount. For example, a mortgage broker might charge 1 point, or a minimum of $1,000.

With all that, if I'm closing on a rental loan in Ohio, here's what I expect to pay out before closing or at the closing.

$2,500 for closing, appraisal, inspection, 1st year insurance

2 1/2% of the loan amount for Title Insurance, Mortgage Broker, Loan Origination

$1,000 to fund the escrow account for future property taxes and insurance. (It's still my money...)

And don't forget your down payment.

[Mariusz Bojarczuk]

Originally posted by @Stephanie P.:

Originally posted by @Mariusz Bojarczuk:

I am buying a house for 62000. The closing costs presented to me are about 6000 dollars.

I was told that points are money as insurance for the bank that I will not sell property early, so they can keep getting mortgage for 30 years. Has anyone heard of that?

The processing fee is 1900. That is a high number. 

The bank wants me to pay the full downpayment although I already made earnest money deposit.

Could anyone help me? Why are the closing costs so high? The house is in Memphis. It seems like every charge is inflated. The bank gave me what they call “preliminary” closing disclosure which legally does not exist. I explained to the bank I signed this meaningless document for their convenience, so underwriter can get a bonus for higher numbers of closings. I was told the closing costs are basically set now.

Can anyone help? Aren’t closing costs supposed to be between 2 and 5 %

Mariusz

Mariusz

It all depends on the type of financing you're getting.

Yes, $1900 is high for an owner occupied residential property, but it's not high for a non-owner, no income verification loan.

Points are not "money as insurance for the bank that I will not sell property early". That would be a prepayment penalty. Points are either for origination or discount (to buy down the rate).

Sounds like the bank was trying to get you a closing disclosure quickly to satisfy a TRID requirement. A "preliminary" closing disclosure would provide a date in their system.

They will not require you to pay the full down payment if you've already paid an earnest money deposit.  It could be that they didn't have the contract to back the deposit out of the down payment or someone just forgot to subtract it when they were doing the data entry.  It happens.

Your statement "I explained to the bank I signed this meaningless document for their convenience, so underwriter can get a bonus for higher numbers of closings." is ridiculous.  Underwriters have nothing to do with closings and get no bonus if a loan closes or just sits there.

My suggestion is walk away from this bank that frustrates you (and believe me, you frustrate them too).  Find a mortgage broker that you trust.  Talk to them and let them educate you about the process of getting a loan.  You'll feel better, have less stress and close easier.  

Stephanie

 Thank you Stephanie,

Yes, you are right, it is frustrating. As to their frustration, I cannot be responsible for their feelings. I need to ask as many questions as I need to feel comfortable. I made a comment about the points because it was explained to me on the phone that they are for “insuring” the bank. That was misleading. The comment about underwriter was made because again the lady told me the underwriter can get a bonus for the number of closed mortgages

The director of the branch had told me before that she will match the interest rate given to me by a different bank. Today, she changed the story and said points are to lower the interest rate.

Since they frustrate me, you are right, I will get a different bank but will make this one work twice as hard by changing closing dates and the amount of my downpayment. Let them do some calculations before I say good bye and inform Federal Reserve about lack of transparency, misleading information, and not updating information on the preliminary disclosure. I am still not sure preliminary disclosure is recognized by TRID

Mariusz

[Stephanie P.]

Originally posted by @Mariusz Bojarczuk:

Originally posted by @Stephanie P.:

Originally posted by @Mariusz Bojarczuk:

I am buying a house for 62000. The closing costs presented to me are about 6000 dollars.

I was told that points are money as insurance for the bank that I will not sell property early, so they can keep getting mortgage for 30 years. Has anyone heard of that?

The processing fee is 1900. That is a high number. 

The bank wants me to pay the full downpayment although I already made earnest money deposit.

Could anyone help me? Why are the closing costs so high? The house is in Memphis. It seems like every charge is inflated. The bank gave me what they call “preliminary” closing disclosure which legally does not exist. I explained to the bank I signed this meaningless document for their convenience, so underwriter can get a bonus for higher numbers of closings. I was told the closing costs are basically set now.

Can anyone help? Aren’t closing costs supposed to be between 2 and 5 %

Mariusz

Mariusz

It all depends on the type of financing you're getting.

Yes, $1900 is high for an owner occupied residential property, but it's not high for a non-owner, no income verification loan.

Points are not "money as insurance for the bank that I will not sell property early". That would be a prepayment penalty. Points are either for origination or discount (to buy down the rate).

Sounds like the bank was trying to get you a closing disclosure quickly to satisfy a TRID requirement. A "preliminary" closing disclosure would provide a date in their system.

They will not require you to pay the full down payment if you've already paid an earnest money deposit.  It could be that they didn't have the contract to back the deposit out of the down payment or someone just forgot to subtract it when they were doing the data entry.  It happens.

Your statement "I explained to the bank I signed this meaningless document for their convenience, so underwriter can get a bonus for higher numbers of closings." is ridiculous.  Underwriters have nothing to do with closings and get no bonus if a loan closes or just sits there.

My suggestion is walk away from this bank that frustrates you (and believe me, you frustrate them too).  Find a mortgage broker that you trust.  Talk to them and let them educate you about the process of getting a loan.  You'll feel better, have less stress and close easier.  

Stephanie

 Thank you Stephanie,

Yes, you are right, it is frustrating. As to their frustration, I cannot be responsible for their feelings. I need to ask as many questions as I need to feel comfortable. I made a comment about the points because it was explained to me on the phone that they are for “insuring” the bank. That was misleading. The comment about underwriter was made because again the lady told me the underwriter can get a bonus for the number of closed mortgages

The director of the branch had told me before that she will match the interest rate given to me by a different bank. Today, she changed the story and said points are to lower the interest rate.

Since they frustrate me, you are right, I will get a different bank but will make this one work twice as hard by changing closing dates and the amount of my downpayment. Let them do some calculations before I say good bye and inform Federal Reserve about lack of transparency, misleading information, and not updating information on the preliminary disclosure. I am still not sure preliminary disclosure is recognized by TRID

Mariusz

 If this is a non owner occupied loan, TRID doesn't apply; it's to cover milestones in their software.

You're better off going elsewhere and not being bitter.  Life's too short.

[Mariusz Bojarczuk]

Originally posted by @Stephanie P.:

Originally posted by @Mariusz Bojarczuk:

Originally posted by @Stephanie P.:

Originally posted by @Mariusz Bojarczuk:

I am buying a house for 62000. The closing costs presented to me are about 6000 dollars.

I was told that points are money as insurance for the bank that I will not sell property early, so they can keep getting mortgage for 30 years. Has anyone heard of that?

The processing fee is 1900. That is a high number. 

The bank wants me to pay the full downpayment although I already made earnest money deposit.

Could anyone help me? Why are the closing costs so high? The house is in Memphis. It seems like every charge is inflated. The bank gave me what they call “preliminary” closing disclosure which legally does not exist. I explained to the bank I signed this meaningless document for their convenience, so underwriter can get a bonus for higher numbers of closings. I was told the closing costs are basically set now.

Can anyone help? Aren’t closing costs supposed to be between 2 and 5 %

Mariusz

Mariusz

It all depends on the type of financing you're getting.

Yes, $1900 is high for an owner occupied residential property, but it's not high for a non-owner, no income verification loan.

Points are not "money as insurance for the bank that I will not sell property early". That would be a prepayment penalty. Points are either for origination or discount (to buy down the rate).

Sounds like the bank was trying to get you a closing disclosure quickly to satisfy a TRID requirement. A "preliminary" closing disclosure would provide a date in their system.

They will not require you to pay the full down payment if you've already paid an earnest money deposit.  It could be that they didn't have the contract to back the deposit out of the down payment or someone just forgot to subtract it when they were doing the data entry.  It happens.

Your statement "I explained to the bank I signed this meaningless document for their convenience, so underwriter can get a bonus for higher numbers of closings." is ridiculous.  Underwriters have nothing to do with closings and get no bonus if a loan closes or just sits there.

My suggestion is walk away from this bank that frustrates you (and believe me, you frustrate them too).  Find a mortgage broker that you trust.  Talk to them and let them educate you about the process of getting a loan.  You'll feel better, have less stress and close easier.  

Stephanie

 Thank you Stephanie,

Yes, you are right, it is frustrating. As to their frustration, I cannot be responsible for their feelings. I need to ask as many questions as I need to feel comfortable. I made a comment about the points because it was explained to me on the phone that they are for “insuring” the bank. That was misleading. The comment about underwriter was made because again the lady told me the underwriter can get a bonus for the number of closed mortgages

The director of the branch had told me before that she will match the interest rate given to me by a different bank. Today, she changed the story and said points are to lower the interest rate.

Since they frustrate me, you are right, I will get a different bank but will make this one work twice as hard by changing closing dates and the amount of my downpayment. Let them do some calculations before I say good bye and inform Federal Reserve about lack of transparency, misleading information, and not updating information on the preliminary disclosure. I am still not sure preliminary disclosure is recognized by TRID

Mariusz

 If this is a non owner occupied loan, TRID doesn't apply; it's to cover milestones in their software.

You're better off going elsewhere and not being bitter.  Life's too short.

 I like what you said. I feel so lost in contradictory explanations from the bank. It is my first time I have tried to purchase investment property. I am always happy to receive feedback and advice from BP community.

Thank you!

[Mariusz Bojarczuk]

Originally posted by @Darrin Carey:

The closing costs can be broken down into categories, by who is charging them. Some of them are a flat cost no matter what the loan size is, and others are a percentage of the loan amount. I'll give you the typical ranges for a rental property loan in Ohio.

1. Title Company fees including the search, closing, recording etc, $750 should cover those.

--  Title insurance. In Ohio the cost is regulated by the state, but 1% of the loan amount will get you close.

2. Lender fees. Loan origination fees. 1/2 to 1 point depending on the the lender. 1/2 point is most common, sometimes I can get 0.

-- Discount points: Sometimes you can get a lower interest rate for the loan by paying some points up front.

-- Appraisal: $400-$600 for a single family

3. Mortgage Broker fees. If you used a mortgage broker, the fees have a wide variety. They could be paid by the lender and you'll see zero charge, and I've seen as high as 3 points on a rental loan. 1 point is pretty common.

4. Loan escrows: If your taxes and insurance are escrowed, you'll have to fund those accounts. Usually 2/12th of your annual insurance, plus enough to ensure the account has enough funds to cover the next tax bill plus 2 months reserve.

5. First years property insurance. Varies by property and location. $500-$1,000 covers a lot of rentals, but if yours is larger, or more expensive, or in a flood zone it could be higher.

6. Property Inspection: $500-$600 for a single family.

If it's a small loan, you may run into minimum fees that make the cost proportionally high to the loan amount. For example, a mortgage broker might charge 1 point, or a minimum of $1,000.

With all that, if I'm closing on a rental loan in Ohio, here's what I expect to pay out before closing or at the closing.

$2,500 for closing, appraisal, inspection, 1st year insurance

2 1/2% of the loan amount for Title Insurance, Mortgage Broker, Loan Origination

$1,000 to fund the escrow account for future property taxes and insurance. (It's still my money...)

And don't forget your down payment.

 Thank you Darrin,

I would like to expect the same. I thought 4,000 would be the estimate. But 6,000? And every time a different explanation and different promises. One call, "you should expect the costs significantly lower" and another call "basically this is what it is."

I set the closing date for next week to see what the numbers really look like. If I don't like it, I will just move on.

Mariusz

[James Wise]

One thing all investors should note is that lenders & actually most all companies in the Real Estate space have minimum fees. So the lower the cost of your property the higher % of the purchase price your bank's closing costs will be. Same with your Realtor commissions & title company fees.