Do These Closing Costs Look Correct?

Question

Hello!

I am currently in the process of purchasing my first multiunit house hack in the Philadelphia area. I am using a 3.5% down FHA loan and have received a loan estimate on a property. The property is $425,000 and the loan estimate says my closing costs will be $22,922. Is this right for the Philly area

or is this extremely high? When watching Brandon evaluate deals he's usually around $7500 in closing costs for this price range of a property.

I have added a picture of the loan estimate for clarification.

Please let me know and all answers are appreciated.

Patricia Gadson · Answer

Yup closing next month on my multifamily and it was pretty similar. Philly market is crazy. Definitely accurate. Try to get sellers assist

Danielle Du Plooy · Answer

It looks correct to me, I just bought a multifamily using a FHA loan and the closing costs were pretty high as well. Philadelphia is an expensive market compared to where Brandon usually finds deals (from what I've heard on the podcast) so higher taxes and higher insurance costs add to that as well. You can ask for a seller's assist in the future to help with the closing costs, I got 3% for mine.

Patricia Gadson · Answer

@Austin Mullen you can potentially get sellers assist after the inspection. If the inspection comes up with any issues you can ask the seller to drop the purchase price saving you a few thousand.

David M. · Answer

@Jack Perfett

In addition to the above, be sure to look at the break out of the costs, not just the ~$23k in "costs" and $7.6k of money down...

I know people keep singing the praises for FHA loans, but you still have have Mortgage Insurance fee which is $7k for you.  Sections G and F for escrows and prepays are really costs directly tied to the transaction/sale.  The prepaids are just cost of homeownership that they want to make sure at least the first payments are made.  The escrows are set aside of your money to pay the taxes and insurance.  So, its really not an actual cost, its a cashflow issue.

As for a seller assist, or as I'm used to calling it a seller concession, you usually address that upfront with your offer.  You should know ahead of time whether you have enough cash to close.  If anything, your lender should make sure of that when preparing your mortgage pre-approval.  The loan officers that don't are doing their jobs in my opinion.  Usually the max concession is 3% of the purchase price, but sometimes its as high as 6%.  Check with your lender as it varies slightly by loan product.  Just becareful of how much you ask assuming you increase the price so that the seller nets what they want (or what you are really offering).  The main catch of doing a seller concession is that the property has to appraise.  This can be a double edged sword as sellers sometimes get miffed when they realize that the property appraised for more and think that they could have sold for more...

Good luck.

John Knisely · Answer

As @Stacia S. mentioned this is actually low if the property is in Philadelphia due to the transfer tax (2.14% on your side as the buyer, 2.14% on the seller side). There is no transfer tax discount for different loan types or for first time buyers. Most suburb municipalities are at 1% although there are some 1.5% transfer tax ones . Also I would estimate closer to $1500 a year for Homeowners Insurance, especially on older stone/brick buildings. Most local lenders do have an origination fee in the $1000 ballpark. Title policy cost is only dependent on the sale price and if you get a standard coverage policy or enhanced, otherwise it does not vary from one title company to the next. The soft costs like notary fee, doc prep etc. will vary slightly from one title company to the next.I typically don't view escrows, reimbursements and prepaids as "closing costs" for property analysis sake of a long term rental because these are costs you owe as part of the annual and monthly cost of ownership, not transactional fees. They are just collected in advance at settlement to establish your "piggy bank" escrow account for the future payments. They are out of pocket costs owed at closing though so it is important to know them and factor them into your cash outlay.

Austin Mullen · Answer

Do you all have any recommendations or more information on sellers assist? Thank you!

Zack Berridge · Answer

@Ryan Giblin do they finance investment properties, or just primary residence?

Alan Lacey · Answer

@Jack Perfett when most people discuss closing costs they are referring to actual loans costs. I wouldn’t let that throw you I. That the loan estimate requires lenders to include prepaid funds for escrows etc. as you are using fha you also have the ufmip as a pretty substantial cost even thought it is financed.

Ryan Giblin · Answer

@Jack Perfett Get a Costco executive membership and enjoy the lowest closing costs in the country!!! The have the best banks in the US.

Danielle Du Plooy · Answer

@Jack Perfett I personally like seller's assist because it's less money out of my pocket at closing and more for a reserve fund and to start saving for my next investment. Meanwhile if I give asking price or slightly higher in an offer price, that will be over 30 years in my mortgage which will be paid by tenants anyway. (When I've offered over it was only 5K not enough to threaten the appraisal with my deal.) It has been a win-win from my experience but it also depends on the deal.

Do These Closing Costs Look Correct?

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