Show Me the Money – Numbers at Closing

Now that you understand how the process works, you might be curious what the actual dollar figures look like. If Martha and Matt took Castle Hill´s recommendation for financing, they likely would have done the following:

Property Address: 11841 Sunhillow Bend, Duplex in Austin´s Technology Corridor

Both Sides Rented for $750/mo per side

Purchase Price: $185,000

Downpayment: 20% = $37,000

Financing: $148,000 note at 5.75% "full doc" 30 year fixed

Closing Costs ($4450):

• Appraisal ($450)
• 1% Origination ($1,900)
• Survey ($400)
• 3 Months Pre-Paid Insurance and Taxes ($1700)

Total out of pocket expense to close the transaction: $41,450

Another common way of financing is a 10% down loan. If Matt and Martha have good credit and can go "full doc", they could get an 80/10/10 financing arrangement with a similar low first mortgage interest rate and a second, 10% lien, at about 7.25% (with rates as of mid 2007). The monthly debt service will be higher, but they´re more levered, and can purchase additional property, or allocate the cash to other investments.

Total out of pocket with 10% down: $23,000

Note that as of Spring 2007, it is much more difficult for "Stated Income" borrowers to obtain favorable rates on second liens and impossible for such borrowers to do 0% down or even 5% down loans. "You gotta pay to play" now, which frankly, we feel is a good thing.

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