Good Faith Estimate... How does this look?

Question

I've found my first rental house to purchase... I went to a mortgage broker that is one of the corporate partners for my local REIA. Since this is my first time, can you look over the attached Good Faith Estimate and see if they are charging any unnecessary items or maybe too much for certain things? I marked out all of the names and addresses.

Thanks!

Eric Foster · Answer

That is correct, and I agree! The last 2 “listed” properties that I bought I had offers in on them before they were in MLS and before a sign was in the yard… Building relationships with many Realtors is a great way to get in that “Inner Circle”… I often get calls like “Eric, I am listing a property the day after tomorrow”… The Realtors love to get an offer right away, which for them means a faster payday! Also, they can say things like, “I have worked with this buyer before and he always closes on time”… etc.

Fred Ramos · Answer

Sorry to hear about your lost opportunity. it figures there were other parties interested. don't be let down as this is usually the case on a good listed property. anyway, what I've found so far is that the properties (with potential) never make it to the MLS. they are usually scooped up by either listing realtor or someone in their office or family. what ends up on the MLS is usually the scraps. not to say that everything that does get listed is bad though because I myself have purchased a few listed properties. I know some people frown on using realtors but I suggest getting to know some of them in your area. just plant a bug in their ear but don't make yourself sound like a super investor (they'll forget about you quickly that way) let them know what you are in the market for and give them an occasional call. just make sure you'll be ready to play when they do call. Be patient. sooner or later it will all work out. best of luck to you.

Jim Doine · Answer

Jason, I noticed in your profile your investment focus was to be a buy and hold landlord. Be thankful you didn't get this property as it was a terrible deal for a long term hold. Using the 2% rule it would need to rent for $1,500 per month to properly cash flow. I suggest you do a lot more research on this forum before you purchase your first investment property. I've seen an awful lot of new investors fail very quickly because they don't fully understand the principles of cashflow.

Jason Click · Answer

Mr Fred, The rent would have been about $950/ month. I say would have been because I didn't get the house. As it turned out there were 5 other offers on the house. I actually raised my offer to $1000 more than the original asking price (which was $80K) and someone paid even more than that. I guess that's what happens when you find a good deal in the MLS... everyone else has also found the same deal. Time to look for another... and this time I think I will go straight to the bank.

Jason Cummins · Answer

FSJR9 This document is the good faith estiamate. Basically it is what the loan SHOULD look like at closing. This is not a pre-approval letter. A pre-approval letter is just that, a letter from the broker or lender that states you are preapproved for a loan in x amount with x as a interest rate. Just remember that the good faith estimate, or GFE, is only an estimate. Many times your actual numbers may be different. If the loan officer is good though the numbers will be just about right on!

Fred Ramos · Answer

my 2 cents..... Fees are extremely high. This is what I've found with most brokers. I suggest going straight to a bank. also, why pay PMI?, there are programs out there that will finance 90% (still) and you pay no PMI...you will pay a .25 point more though. I ran the numbers on this deal and appears that minimal rental (to break even) would be roughly $780 monthly. hopefully you've already figured that you can collect more than this. Good Luck!

Fred Shandler · Answer

I think this discussion is an excellent learning opportunity for newcomers (like myself), as it provides a real-life sample for evaluation. First, is this essentially a form that outlines the mortgage for which you’ve been approved? So does that make it a “pre-approval letter”? Can someone describe the specifics of this estimate in further detail? (Which terms are negotiable, which are set, which are some to pay closer attention to, etc.) Also, why does it state $11.2K “total estimated funds needed to close”, when the mortgage is for $67.5K? I thought closing costs were significantly less? And when I run $67.5K through a mortgage calculator, I get a $432 monthly payment, however, on the estimate in states the monthly payment is $725. Would someone please explain? (Note, I do not intend for a thread drift, I think the questions are on topic –just a little more specific) Thanks Fred

Jason Click · Answer

Fred, The total payment includes the principal, interest, mortgage insurance, hazard insurance and property taxes. The total due at closing includes the down payment. The purchase price is $75K. I'm new at this also. I've learned more actually doing it than all of the reading I've ever done.

Eric Foster · Answer

1% in my area is a “typical” origination fee…But also they usually get another 1% or so from the lender in “rebate”. It is a small loan amount, and a small loan is as much work as a large loan…. So this is always a tricky question… But 4%-5% is just too much!… Maybe half of that?... (Im making all the loan officers here happy I am sure!)

Jason Click · Answer

So the norm would be about 1%? With $3000 in fee's that would be 4%. I guess that's really high! So when I go back to the broker, I want to be be fair... should the most I be paying is 1% or is their fee around 1%? I just need to know what to stand firm at. Thanks for the help!