Hi All,
I am looking to do some rehab & rent deals in the US this year and was hoping that someone might be able to give me an idea on what costs are associated with getting a mortgage.
I think it will be vastly different to here in Australia so if someone could please give me a breakdown of ‘typical’ and ‘unexpected’ fees & costs that I would be up for when applying for a mortgage I would appreciate it. Thanks.
Cheers,
Matt.
Hey Matt,
There are several things that you should be looking into.
First, conventional lenders have financing restrictions for foreign nationals. I assume you have no residency status in the US. Many will want some type of VISA as well.
Second, rehab/hard money lenders, will not all work with international borrowers.
You’ll most likely need work with a mortgage consultant/broker/loan officer (all the same thing) as they will have access to the lenders you will need.
Fees you will typicall see here in the US are:
Origination (brokers commission/compensation) and this will vary in range depending on the loan amount, interest rates you selected, and other factors.
Discount points are used to buy down your interest rate.
1 pt is equal to 1% of your loan amount
Broker fees (some brokers have to pay their company a fee)
Credit report -$15-$20
Lender fee - paid to the company your broker sets the loan up with. $600-$800 (incl. tax and flood fees)
Processing Fee - A broker will turn over the file to his processing staff. Some offices have processing internally, others use contract companies. Range from $400-$550
Appraisal - $300 avg
Title company - $1000 to $1500 (depends on loan size and the amount of business done with them) A little less for refinancing vs. purchases. Some states require attorneys to be used and this may be a bit more.
Most leders want home owners insurance paid upfront for at least 1 year. If you choose to have the lender set up an escrow account to pay the taxes and insurance then they will collect about 2 months of monthly payments for those upfront.
Interest from the day you close to the last day of the month is also paid upfront.
I highly recommend having a consultation with a mortgage consultant about your goals and options available.
Certain states have their own set of fees related to taxes and other misc. feels
Nice breakdown of the costs. An easy way to think of the costs of closing the loan is 3-6% depending on the size of the loan (larger loans=lower percentage). As far as simple breakdown for your cost-analysis for loans up to about 300k I would use those numbers.
Gday Mate - I charge 2% to deliver the par rate and i show the rate sheet to the client. I also provide 1 point and zero point options with higher rates. if you are not keeping the properties for very long it makes more sense to pay zero points and take a higher rate. Pass through fees, title insurance, hazard ins, taxes all vary by state. Appraisals run from 300-800 depending on the area. Foreign Nationals to 90% in 40 states
Hey Drewling,
That’s how I set up my clients as well. I am upfront with them about the compensation for my services. Knowing there goal with the propert is important for preparing options.
Quick question, something I struggle with myself. Maybe other brokers reading can comment too.
If you know a loan is going to payoff in 1-3 months are you not concerned about the recapture on the premium paid by the lender? If you’ve used this to pay the borrower’s closing cost, how can you repay them?
Are you disclosing to the lender that the loan is only short term? I find it hard to take money from them knowing they wont have a loan very long. It seems that most lenders would eventually cut off a broker.
You’re right, there are several lenders out there that will do foreign nationals to 90%. Even a couple that will allow up to 100% cltv.
G’day Ben, Mark & Drewling,
Thanks for the posts guys, the information was very helpful, especially Ben’s cost breakdown.
I am currently trying to sell my residence here in Sydney and if I get the price I want I will walk away completely debt free with around US$65k cash.
My goal is to buy undervalued properties, do a minor rehab and then rent them for cashflow. Do you think I would be better off using cash to buy & rehab and then refinance to pull my cash back out? Is it easier for foreign nationals to get approval for a refinance than a purchase?
Also would it be easier if I set up a US entity such as an LLC to purchase?
Cheers,
Matt.
Hello Matt,
There are only a handful of lenders that offer financing over 80%; because of that you would have more opportunities with refinancing. Your loan to values with be much lower once you can use the new appaised value. So not only do you need a lender that works well with foreign nationals but you’ll need them to also have no seasoning refinances if you want cash out.
If you are planning on purchasing properties that realy need a lot work and they are below average condition (unlivable), a conventional lender will not be able to finance those anway. If the work is just cosmetic then that would be ok. Conventional lenders have rehab programs but none that I know of available for investment properties for foreign nationals.
Hard money lenders usually will fund the purchases that conventional lenders will not.
Residential lenders will not allow you to use an LLC to finance the properties. They can be purchased in your name and then the title moved over to the LLC for liability. But you’ll want to speak to a real estate attorney about that to know all the facts on how this can affect you.
Local banks will finance properties in the name of a LLC at much lower ltvs, higher rates, and shorter terms. I am not sure if they would finance foreign nationals.
Thank Ben,
The work required on a property would depend on whether the numbers indicate that a run down house will provide adequate ROI, otherwise I would probably stick to cosmetic enhancements.
I don’t want to get in too far on the first few properties anyway as I will not be there to run the project, eventually I hope to be able to move to the US and then get really stuck into it.
I am planning a trip in around April/May to make some contacts so if there is anyone on the forums that may be able to provide services for finance, legal, accounting, project management, rehab work, property management etc, please send me a PM.
I am open as far as States/Counties are concerned as long as the numbers work.
Thanks again to those who responded.
Cheers,
Matt.