Tuesday was a good day for the business. We had two closings on properties we sold.
Here was the interesting thing about one of them. The buyers came to closing with USDA financing. Are you familiar? Under the terms of the program, an individual or family may borrow up to 100% of the appraised value of the home, which eliminates the need for a down payment.
And this family did. They received 100% financing. We’ve sold a number of properties this way. What was unusual in this case was that the seller had to bring $12,112.40 to close on a $143,000 purchase. That’s almost 10% and most of it was for fees! Times have changed and borrowing is not only more difficult but far more expensive!
Here’s a sample of what the buyer had to bring to close on this property with free financing:
$1982 origination charges
$ 400 appraisal fee
$ 48 credit report
$5187 mortgage insurance
$1077 lenders title insurance
$ 88 recording fees
$ 60 pest inspection
$ 435 home inspection
$ 300 survey
There is a cost to buy and it’s grown considerably in the past few years. If you’re buying, beware. If you’re selling, prepare your buyer. Loans are difficult to get. Loans are expensive to get. Lenders are nervous. Underwriters are nervous. Insurance companies are nervous.
Buying or selling, be sure you’re working with people you trust who will be there with you and keep you informed.
Comments?
Apr 8th, 2011 / 6:44 pm
Dora:
Thank you so much for that clearly stated information! You’re so right, upfront MI is a great tradeoff for getting zero down.
Apr 8th, 2011 / 5:36 pm
Karen it is certainly more expensive and will continue to be so. The latest interference from the Federal Reserve in a free market insures that lenders will be raising interest rates and costs.
A few things re: the USDA (RHS) loan. One, the funding fee used to be 1%. It was raised in the last year or so to 3% to cover losses and to keep the program solvent. In this case it would be actually a good thing vs FHA loans where the losses have caused them to raise MI after losses to loans that probably should not have been done.
USDA (RHS) loans do not have monthly MI insurance. In that sense they are like VA loans. The up front (which can be financed normally or included in qualifying seller paids) offsets a much higher monthly payment if monthly MI were required.
Another point is regarding the origination fee. The fee could have been charged to offer a lower rate to the buyer, so perhaps it went to something to benefit him/her. Without it the interest rate would likely have been higher. So you kind of have to look at rates with and without the origination fee to determine if this fee was worthwhile.
I read that USDA and VA loans are the least likely to default. When I read the post the term “fees” makes one think these are junk fees. The Up front MI fee is a fee for getting the zero down loan. Not a bad tradeoff.
Thank you for the post. It does lay out the fact that zero down still has costs.
Apr 8th, 2011 / 4:43 pm
Ron: We absolutely do owner financing. For some, its the only way they’re able to buy a home. Our rule, however, is a purely financial one; if we have too much cash in the deal through either purchase or renovation, we sell it. If we have very little of our own money in the property, we will hold and owner finance.
Apr 8th, 2011 / 4:41 pm
Ken: You are so right. And we don’t know how much longer the government will be offering 100% loans to anyone.
Apr 8th, 2011 / 2:04 pm
Congratulations, closing is not an easy thing to do now days. Question, as an investor do you look more to do seller financing or is it even something you use? I just look at this situation and see an almost 10% down as you stated. Even if you acted as the agent and collected your fee, they still would have had a 7% down and lowered the payments with a small equity in the property.
Apr 8th, 2011 / 12:50 pm
$400 is a bargain for an appraisal. HVCC caused appraisals in our area to soar to over $500. Even with HVCC’s expiration,appraisal fees haven’t come down. In stead of mortgage insurance, USDA charges an up front guarantee fee of 3.5%, which, like the VA Funding Fee, is added to the loan. $1,982 in Lender origination charges is a bargain if they include underwriting, processing, tax service, and flood cert, and any other third party fees that the lender is passing through.
Yes, costs have gone up. The government is requiring more behind-the-scenes third party certifications. Funny thing–every vendor wants to be paid for its services. That said, USDA
Guaranteed Rural Financing is one government program that really helps people. It is one of only two 100% financing programs available nationwide. And, it’s completely self-funding. Every year tens of thousands of people who otherwise wouldn’t qualify, are able to buy homes.