I just got home from the bank, went to sign papers and go over everything before closing. detail.single family rental  - buying for 40k with 20% down - conventional loan 30yr fixedbuyer agreed to pay 3% in closing = $1,200Here is the break down of the loanPurchase price                    $40,000Estimated Prepaid Items     $1,717.35Estimated Closing Cost       $2,478Discount                               $560total                                      $44,755.35Seller pays 3%closing        $1,200Loan amount                       $32,000Cash To Bring at Close         $11,555.35I got quoted 5.375% for the loan rate, then i agreed to pay $560 to drop it down to 5%Is this normal for the rate to be this high?

Good advice above.In addition, I would strongly advise against using any kind of pre-paid legal forms!

Instead of taking title, do a prepaid master lease for whatever term (99 years).

I was also told that the two houses count as a liability and not an asset until I have two years experience as a landlord( Debit to income ratio is to high).What is the quickest way around this problem?

A cheap pre paid phone 

Hi Kevin,This is Rick with eRentPayment as a great option we offer for tenants without a bank account is to set up a NetSpend prepaid card as they can enter that like a bank account in our system.  

They offer a CC payment option - I'm not sure if that would allow your tenants without bank accounts to pay online via a prepaid debit card, or BlueBird type card - it's probably a good question for them. 

The BIG kicker was that the contract stated, "DOWN PAYMENT SHALL BE APPLIED AS PREPAID INTEREST ON THE MONTHLY LOAN PAYMENTS."  

All the other fees are your closing costs on top of that......application fee, appraisal, survey, MIP up front costs, points, prepaid 15 months of insurance and property taxes, etc. ....and are totally unrelated to your down payment.  

Yes, if that's your Cost Basis including closing costs excluding any pre paid interest/points, not what it's actually worth.