Going through Refinance on our 1st BRRRR - closing costs review?

Question

Howdy folks,

Greetings.  We're wrapping up our first multi-family BRRRR project and finalizing the cash-out refinance process now.  We're expecting to close next Monday and just received the closing disclosure statement, I'm trying to figure out if the associated refi costs (~$10.4k) are exorbitantly high or if we're in line with normal costs.

We purchased the duplex in May 2019 for $65k, put about $70k into it and got it appraised for $164k. We're taking out a new 30yr VA loan @ 2.75% for $130k, leaving 20% equity in the property and taking out nearly all of the money we put into it - minus the costs of new tools, education, etc.

Here's a breakdown on the closing costs we're looking at:

In one way, I feel like we lucked out with not paying any origination fees or discount points, but in another way it feels like ~$10.4k is higher than normal of what I've read about closing costs being.  I'm not sure if it's completely accurate, but I've read that typical closing costs range anywhere from 2-6% of the total loan amount.  The $7,941.14 is on the top end of that estimate, with being just over 6%.  I'm unsure if I'm interpreting it correctly, but I'm also adding the extra $2,443.68 to the total amount of 'closing costs' as those are additional fees we've already paid for.

Any insight/feedback on the closing costs and our first BRRRR in general are certainly welcome and appreciated!

Cheers and have a great day.

Whitney Hutten · Answer

@Jim Peckey. Your closing costs are the $7.9K.  You have a tax in there that is causing this to jump up on you.  Other than that, it seems to look good!  Congrats!

Stephanie P. · Answer

@Jim Peckey

Even though this is a refinance, I would stop the process look into conventional financing.  It's going to take a long time to make up for that VA funding fee and in reality, the rate on a conventional 80% ltv loan will be comparable.  You could use your VA eligibility on the next home for the purchase rather than wasting it on this refinance.  VA is great if you don't have the down payment to purchase.  Other than that, it's just not (other than a VA IRRRL)

Stephanie

Steve Vaughan · Answer

I've never used the VA loan I am eligible for because of the funding fee.

Conventional loans are generally a better value than VA or FHA.

Dan M. · Answer

Everything looks normal to me except for this "VA FUNDING FEE" of close to 3000. But then again your getting an awesome interest rate. Also insurance is included in this which normally I would just pay for myself but either way you pay for it either through the closing or pay for it ahead of time to close.

Steve Vaughan · Answer

If the VA rate is lower, there is definitely a cost/benefit analysis you can easily run to find the break-even month. Same with not having PMI for no/low dp below 20%.  That's definitely a benefit if true and applicable.

Jim Peckey · Answer

@Steve Vaughan - thanks for the response!  This being our first refi using a VA loan and while I appreciate the low interest rate, I've learned my lesson to go with a conventional loan from now on.  Especially considering I'm debt free and with a good credit score.  Admittedly, I put a bit too much emphasis on the lowest possible interest rate, which the VA loan seemed to offer at the time.

Cheers and have a great day!

Michael Brant · Answer

I'm new here so please anyone more knowledgeable correct me if wrong ...  but if you have a service connected disability rating by the VA of 10% or more you qualify to have that fee waved.

Stephanie P. · Answer

@Jim Peckey

Commercial loans, in general, don't work for owner occupied loans.  I DM'd you for further discussion.

Thanks

Stephanie

Jim Peckey · Answer

@Sean Fillmore - thanks for the response!  I don't know why I haven't looked into getting a VA disability rating by now, I can see there's numerous benefits for sure.  I got out in '02 and despite not having any major disabilities, I certainly wouldn't turn down any offered benefits over the minor injuries I sustained while on active duty.  I've been looking at the VA website this evening and attempted to start an online claim, but it looks like the website is prompting me to call in during normal business hours - perhaps I'll try giving them a call tomorrow.  I've always envisioned the process to get a disability rating to be intensive with having to visit numerous doctors to generate a paper trail, submit updated medical records as evidence, and all that jazz.  Have you found getting a disability rating to be a hassle in general, or has that been pretty easy to do?

Cheers and have an excellent upcoming weekend!

Jim Peckey · Answer

@Stephanie P. - Thanks again for your insight, I really appreciate it.  I also completely agree that sound financing and positive numbers should precede a plan.

We’re still working on our first “investment” property, and so far we’re following pretty closely to your advice.  We purchased it on a VA loan with 15% down and have been house hacking, while steadily making improvements to the property.  We’re finally at the point of having the other unit fully renovated, rented out and we’re looking for our next multi-family property – ideally a quadplex.  It sounds like we should be considering an FHA or conventional loan for that property, which makes sense.  It also makes sense to reserve the VA loan for the bigger house purchase that we plan on making within the next year or two and once we build our portfolio to 10 rental units.

We recently found a quadplex that’s zoned commercial.  Admittedly, I don’t have much experience in the commercial world but I’m going to be shopping for a commercial loan over the next few days.  I’m just hoping the process & acquiring a pre-approval letter won’t jeopardize or conflict with the refinance we’re currently working to finalize, especially considering there’s going to be a delay with switching from a VA loan to a conventional loan in the 11th hour.If you work with borrowers in NY, I’d be glad to explore commercial loan options with you.

Thanks again and have a great upcoming weekend!Cheers.

Going through Refinance on our 1st BRRRR - closing costs review?

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