Am I being ripped off with Closing Costs?

[Ellen Morrison]

Hi guys! 

My partner and I have been sending out direct mail for the past 3 months and we've finally found a deal (SFH). Comps are at $80k, seller wanted $60k and after negotiations we got the property under contract for $42.5k. The property is occupied with a tenant paying $750/month and the lease expires in one year. Since the property is occupied and we can't BRRRR, we've decided to finance with a conventional loan.

We found a lender that will take 15% down but they want $5,849 in closing costs for "Loan Costs" and "Other Costs". My understanding is that closing costs should be 2% - 5% of the value of the property.... this is over 13% which seems outrageous. The interest rate offered is 5.875% which is better than other lenders we've talked to, but are we being ripped off? 

This is a reputable company that I found through Bigger Pockets, so what am I missing? Why is this so high? 

[Caleb Heimsoth]

Originally posted by @Ellen Morrison:

@Caleb Heimsoth the last time I had it pulled it was 719. Also, what is the Homeowner's Insurance Premium and why are we paying that for $750 plus 4 months worth of homeowner's insurance for $475?

You should probably be around 5.375 if you had 740 plus credit and 50k plus loan amount.  Since you don’t have either of those, you’re probably looking at around .25 added to your interest rate for loan amount and .125 for the credit score which puts you at 5.625 so that seems competitive to me.  Where you’re not competitive is the points.

Also your appraisal seems high.  Should be closer to 500, maybe lower.  I could be wrong on that.

12 months for insurance premium is your first year insurance up front.  The extra 4 months for insurance is for your escrow account.  That’s normal.  Your loan officer should be able to mention all of this for

You.