Buying for $105K. Repairs $2K. Property is worth $125K.
Two questions:
I assume I will have to pay some closing costs even though I am buying Cash – what is customary?
I also have a tenant lined up to move-in. In Texas I cannot get a home equity loan on this rental property. So, what is the best way to get my cash out of the property? How can I do this without paying closing costs again (higher rate?). Or should I get the lower rate and pay the closing costs up front/roll the closing costs into the loan?
Since you are not paying lender fees your fees should be between $500-1000 depending on whether you will have to have a title policy and who is paying for it.
As for your cash-out… you can do a cash-out on a NOO property in Texas. You are looking for a no seasoning loan and it looks like you will need 90% LTV once you factor in closing costs on the second. Your rate is not going to be pretty on a no seasoning 90% LTV NOO Cash-out. But it can be done.
Thanks Christopher. Seller is paying for title insurance policy so I assume I should be close to $500 on the closing costs when I buy with Cash.
On the second, question, I guess I didn’t phrase my post properly. I am not looking to get my entire cash out. I am looking to do 70% LTV based on a appraisal of 120K. This should allow me to avoid the rate hit for cash-out refinance with <70% LTV. So that would be a principal amount of $84K. With FICO > 800. What should I expect in terms of rates for the following options?:
Actually this can be done as a “no cash out” refinance.
There are lenders that will allow you to get only the cash (or less) used for the purchase. This has to happen within the first 90 days of your purchase. You also have to show the lender that the money for purchasing the property came from your own seasoned funds. The seasoning doesnt come into affect as this is considered a rate/term refi. LTV based off the appraisal value and no cash out hits.
Chris is right though about the cash out for investment properties in TX, no restirctions on these.
It is your decision but I would not put $100k into 1 house, you can buy 10 $100k house putting 5% to 10% down and retire with $100k.
If you buy that house for $100k and that house is worth $125k you have $25k of instant equity and you have just made 25% on your $100k invested, but if you bought that same house and only put $10k down and took out a $90k loan you would have just made 125% on the instant equity.
Thanks ILoans. So since this is not considered a cash out should I expect the normal NOO mortgage int. rate (i.e. no hit)? Given my FICO what would be a competitive rate?
Bluemoon – that is why I am getting a mortgage after closing (to get my cash out for other prop. down payments). There were 8 offers on this property, I got it because I was the only one who offered Cash, and I did so because I knew it may give me the edge, and it looks like it did.
Based on the information you provided in your posting your rate should be somewhere in the mid 6’s. Without knowing doc type and FICO score it is difficult to quote a rate. But because of your LTV and no hits for cash-out there are only a few adjustment to the pricing that have to be made. Hope this helps.
Thanks Christopher. Yes that does help. I will just need to decide whether I should pay the closing costs for that rate or pay the price (3/8) for no closing costs.
That is simple. Just do the math. Take the dollar amount in closing costs divided by difference in the two payments. That number is the number of months until you break even on the fees. If you think you are gonna keep the house for that many months then go ahead and pay the closing costs. If not, then go with the higher rate. For example.
Based on your posted numbers…
120K ARV X 70%=96K
Closing Costs=$3000
96K @ 6.625%=$614.70
96K @ 7%=$638.69
$638.69-$614.70=$23.99
$3000/$23.99=125.05
So you would have to have this house for over 10 years before taking the higher rate will cost you more. The average loan lasts between 3-4 years. I would suggest taking the higher rate and roll in the costs.
P.S. This is purely an example. Please do not take these numbers as a quote or a committment to lend.
Correct, you will not get the normal cash out hit. So 80% or higher may possible if you wanted more cash out.
Christopher is correct in the fact that how long you plan to hold the property will be a key factor. Not only will it determine what type of program (arm vs fixed) but it was play a factor on how you can structure your closing costs vs. rate.
Your mortgage consultant should be allowing you to determine their compensation through either a premium paid by the lender based upon the rate or through origination that you pay upfront at closing. The higher the rate and compensation paid by the lender, the lower the origination will be. This is great for short term holds. For long term holds, just the opposite. Taking the lender’s par rate (meaning broker gets no compesantion) means you’ll pay more in origination but you’ll save more in interest long term.
Thanks ILoans and Christopher. Y’all have been a great help. I closed yesterday and to my pleasant surprise I had to pay less than $30 for closing (deed filing fees). Seller paid for everything else :biggrin