Posted by Dons on April 16, 2007 at 18:45:16:
But if you can get those closing costs down to where they should be (maybe another mortgage broker) you’ll have save enough for the down payment on another property.
Don
First Investment - Posted by Foster
Posted by Foster on April 15, 2007 at 10:46:31:
I have recently found a property that I want to buy. The seller owns the property outright and he wants 47K for it. We came to the agreement of doing the sales contract for 50K with 3% seller help due at closing plus $1500.00 dollars after deal is done. The purpose for this was to minimise the amount of out of pocket money I had to dish out. I found a mortgage broker who would provide financing with a 10% down payment, which comes out to be $5000.00. The mortgage broker just gave me the good faith estimate which still has me paying $4830 in closing costs on top of my $5000.00 down payment and what amounts to $3000.00 in seller help. The reason for this is because of prepaids for escrow such as taxes and insurance. Also on another note the interest rate that the broker is getting me is 9%. Does anyone have any Ideas on how I do this deal so that I am paying around $6000 out pocket at time of closing. Any help would be appreciated.
Re: First Investment - Posted by Lk
Posted by Lk on April 15, 2007 at 20:03:59:
You kind of lost me, but I’m a little slow on Sunday evenings. Am I understanding that the $1500 from the seller will be paid in addition to the $4830? 10% closing cost is extreme. I would definitely get a second, and third opinion (if you dont like the second) of terms from other brokers/banks. Also, how are you going to get back $1500 cash from the seller after closing? I haven’t been able to talk my bank into that one yet. Is the contract signed yet? If not, I would recommend some additional negotiation with the seller (and the broker). There are different ways you can structure it with the seller and the broker that me more beneficial to you, but it really depends on the FMV of the property and your exit strategy.
Re: First Investment - Posted by Dons
Posted by Dons on April 15, 2007 at 17:38:35:
Did you price the loan with another broker? That $4830 sounds way too high on a $45K purchase.
Dons
Re: First Investment - Posted by IB (NJ)
Posted by IB (NJ) on April 15, 2007 at 15:54:36:
What’s the value of the property? One thing that comes to mind is that you can raise the purchase price and have the seller pay all closing costs. Particulary, if an appraisal will support it.
Re: First Investment - Posted by Foster
Posted by Foster on April 16, 2007 at 08:20:02:
The way the deal is set up right now I will be putting 10% down on the loan amount of 50K which means I will borrowing 45K from the bank. Then I will be getting $3000 from the seller at closing. After that there are still another $4830 in closing costs on the good faith estimate. So I am waiting on the appraisal of the property to see if I can raise the loan request amount and in turn get more money from the seller to help with closing costs. In response to your other question I have gotten an approval from my own bank for a loan of 50k but the kicker is on a two unit investment property they require 20% down payment which comes to 10K not including closing costs. My own banks rate is better than the one the mortgage broker is offering though my bank will do the loan for 7%fixed rate versus 9%fixed from the mortgage company. So what this all boils down to is I’m trying to get into real estate investing, I currently have 17k dollars in the bank, I have a middle credit score of 711, and I am looking to buy properties that are 50K dollars and below. My goal is to try to buy two properties per year that create a positive cash flow while still paying the mortgages down.
Sorry this was a long response.
Re: First Investment - Posted by michaela-CA
Posted by michaela-CA on April 15, 2007 at 22:15:30:
the $ 1500 can be done as ‘decorator’s allowance’ and can be openly put on the HUD. If you’re trying ot do it under the table, you take the risk that the seller will say afterwards:‘it’s not in the contract.’ and you’re screwed.
I agree with others in that the quoted closing cost are too high - 10%. As a rule of thumb closing cost are normally around 3%, but of course there are variations due to personal situations.
As others mentioned, get some other quotes, but try not to let them pull your credit report until you’re sure you want to work with that mortgage company. Everytime your report is being pulled your score will go down. If you don’t know what your score is, then you can buy it at myfico.com. Then get your preliminary quotes based on those scores. If the property appraises higher than your purchase then you can roll a lot of cost in by adding it on to the purchase price and having the seller pay it.
Michaela
Re: First Investment - Posted by Foster
Posted by Foster on April 16, 2007 at 08:26:45:
No I have not gone with another broker, but I am trying to do some more research on the matter. I thought that the closing costs were high too, Because without the $3000 in seller help my closing costs would be $7830 on a $45K purchase
Re: First Investment - Posted by Foster
Posted by Foster on April 16, 2007 at 08:02:09:
Thanks for all the input from everyone. I talked to the mortgage broker about getting a copy of the appraisal, that way I may be able to get more from the seller at closing. There are a few houses on the same street that are identical to the one I want that look a little better on the outside that are on the market for 60K to 65K. I have done the math for the property that I want and after everything is said and done I should bring in about $300 per month extra income on the property.
Re: First Investment - Posted by Rich
Posted by Rich on April 18, 2007 at 12:16:44:
Are you counting the escrow money for insurance and tax as “closing costs”, because they are not. Neither are points paid to reduce the interest rate. Closing costs are the monies due the lender and mortgage broker for doing the loan. They will typically be either a % of the loan amount if over $100K or $3500+ for under $100K loans.
I have heard of what has been called a “portfolio” loan, where you get a single loan with multiple properties on it. The advantage as far as I can tell is to get the loan amount above the $100k dividing line on closing costs as well as reducing the number of active loans on your credit report (which can depress your credit score).