How much does transactional funding cost, and who pays it?

The fee is priced per transaction, not as a rate

Transactional funding is out for hours, so lenders charge a fee for the transaction rather than an interest rate. The wholesaler is the borrower and the wholesaler pays it. It is normally settled at the B to C closing: the end buyer’s money repays the lender, the lender’s fee comes out, and the rest of the spread is paid to you.

Lenders commonly structure the fee in one of a few ways, and the structure, not the headline number, decides what you pay on a given deal. A low percentage with a high minimum can cost more on a small deal than a higher percentage with none.

• A percentage of the amount funded, which is usually the A to B purchase price.
• A percentage with a minimum dollar fee, so a small deal pays the minimum rather than the percentage.
• A flat fee plus a percentage. One published example: 2% plus a $500 fee on a $100,000 loan comes to $2,500.
• A fee plus interest or extension charges if the loan stays out beyond the day, which is where a cheap quote can become an expensive one.

What the market commonly quotes

Published guides to the market commonly quote a fee of about 1% to 2.5% of the amount funded for a same day double close, some with a flat processing fee on top and some with a minimum dollar fee on small deals. Funding that stays out beyond the day is priced differently, and usually costs more.

Treat that range as a description of what gets quoted, not as anyone’s price. The number that matters is the total dollar cost on your deal, and you get it by asking every lender the same four questions.

• What is the total fee, in dollars, at my A to B price?
• Is there a minimum, and does my deal hit it?
• Are there processing, document or wire fees on top?
• What happens, and what does it cost, if the B to C closing slips past the day?

A double close is two closings, and you pay on both

The closing costs of a double close often come to more than the funding fee. You are the buyer on the A to B closing and the seller on the B to C closing, and each closing carries its own title, settlement and government charges. An assignment has one closing; a double close has two.

On each closing, expect some version of the items below. Which of them land on you depends on the closing cost paragraph in each of your two contracts.

• Closing services: the closing agent’s fee for preparing documents, conducting the closing and disbursing funds, charged to each party separately.
• Title search, and depending on the contract, a municipal lien search and a tax search.
• The owner’s title insurance premium, plus a lender’s policy on a financed purchase.
• Documentary stamp tax on the deed.
• Recording fees for the deed, and for any mortgage.
• Taxes on any note and mortgage, if the purchase is financed with a recorded mortgage.

In Florida, the title premium is set by rule and the closing fee is not

Florida title insurance premiums are fixed by rule rather than negotiated. Rule 69O-186.003 of the Florida Administrative Code sets the premium for an owner’s policy at $5.75 per thousand dollars of coverage up to $100,000, and $5.00 per thousand from $100,000 to $1 million. The Florida Department of Financial Services says anyone issuing a $100,000 owner’s policy should charge the same base premium of $575.

On a $240,000 sale, that works out to a base premium of $1,275 before endorsements: $575 for the first $100,000 and $700 for the next $140,000.

The closing agent’s own charges are a separate line. Florida law defines closing services, meaning preparing documents, conducting the closing and disbursing funds, separately from the premium, and the standard Florida residential contract has each party bear its own closing services fees. That is the part to get in writing before you choose a closing agent for a double close.

Documentary stamp tax is paid on each deed

Florida taxes every deed. Section 201.02, Florida Statutes, imposes documentary stamp tax of 70 cents on each $100 of the consideration for a deed conveying real property, and consideration includes the money paid or agreed to be paid. In Miami-Dade County, the Florida Department of Revenue lists a rate of 60 cents per $100, plus a surtax of 45 cents per $100 that does not apply to a document transferring only a single-family dwelling.

A double close records two deeds, A to B and B to C, and each is taxed on its own price. On an A to B price of $200,000 and a B to C price of $240,000, outside Miami-Dade, that is $1,400 on the first deed and $1,680 on the second: $3,080 in deed tax on a property that changed hands for an afternoon.

An assignment records one deed, from the original seller to the end buyer. That is one of the main reasons a double close costs more, and it is fixed by statute rather than by anyone’s pricing.

The Department of Revenue also says that all parties to a document are liable for the tax regardless of which party agrees to pay it. Who pays is a contract question between the parties. Whether it gets paid is not.

Taxes on the funding itself, if it is secured by a Florida mortgage

If the lender documents the A to B funding with a note and a mortgage recorded in Florida, those instruments carry their own taxes. Section 201.08, Florida Statutes, imposes documentary stamp tax of 35 cents per $100 of the obligation, paid on the mortgage at recording when there is both a note and a mortgage. Section 199.133 imposes a one-time nonrecurring intangible tax of 2 mills, which is $2 per $1,000, on obligations secured by Florida real property.

On $200,000, those would be $700 and $400. Whether your deal triggers either depends on how the funding is documented, and lenders differ. Ask the lender and the closing agent before closing day, and make sure the answer is on the draft settlement statement rather than discovered on the final one.

Who customarily pays what: A, B and C

In a double close you sit on both sides, so the customary split lands on you twice: once as buyer and once as seller. The standard Florida Realtors and Florida Bar “AS IS” residential contract sets defaults that many Florida deals start from. The list below follows those defaults, in the same order for each party.

Who pays the owner’s policy is a box on that form, with three choices: the seller pays; the buyer pays; or a Miami-Dade and Broward regional provision under which the buyer pays the premiums and the seller pays for the title search up to a stated amount, the tax search and the municipal lien search. Custom varies by county: buyers typically pay in Miami-Dade and Broward, and sellers typically pay in counties including Palm Beach, Orange, Duval and Hillsborough.

All of it is negotiable. The form is a default, not a statute, and your A to B and B to C contracts can allocate each cost differently. A wholesaler who signs an A to B contract putting the closing costs on the buyer, and a B to C contract putting them on the seller, has agreed to pay most of both closings. Read the closing cost paragraph in each contract as carefully as the price.

• A, the original seller: deed tax on the A to B deed; the owner’s policy on that closing where the contract puts it on the seller; A’s own closing services fees.
• B, you, buying from A: recording fees for the deed, plus taxes and recording fees on any note and mortgage; the owner’s policy where the contract puts it on the buyer; your own closing services fees; and the transactional funding fee.
• B, you, selling to C: deed tax on the B to C deed; the owner’s policy for the end buyer where the contract puts it on the seller; your own closing services fees.
• C, the end buyer: recording fees for the deed, plus their lender’s costs and taxes on their note and mortgage; the owner’s policy where the contract puts it on the buyer; their own closing services fees.

A worked example, with illustrative numbers

The numbers below are illustrative, chosen to be round and easy to follow. They are not a quote from any lender or closing agent, the funding fee is an assumption made for the example, and your deal will differ. The deed tax and the title premium are computed at Florida’s statutory and promulgated rates, outside Miami-Dade, in a county where the seller customarily pays the owner’s policy.

The deal: you contract to buy at $200,000 and to sell to your end buyer at $240,000. The gross spread is $40,000. The original seller pays the deed tax on the first deed, as the standard contract provides.

• Transactional funding fee, assumed at 1.5% of $200,000: $3,000.
• Your closing services and charges on the A to B closing, illustrative: $1,000.
• Your closing services and charges on the B to C closing, illustrative: $1,000.
• Owner’s title premium for the end buyer on $240,000, at the promulgated rate: $1,275.
• Documentary stamp tax on the B to C deed, at 70 cents per $100 of $240,000: $1,680.
• Total cost to you: $7,955. Net spread: $32,045.

Where the example moves, and by how much

In the example, the cost of the structure is about a fifth of the spread. Run the same arithmetic on a $15,000 spread, buying at $200,000 and selling at $215,000, and the structure takes roughly half of it. Thin spreads are where double closes stop making sense, and the arithmetic shows it before the closing table does.

Four changes are common enough to run before you sign anything.

• Your A to B contract puts the deed tax on the buyer: add $1,400 for the first deed. Total cost $9,355; net spread $30,645.
• The funding is secured by a recorded Florida mortgage and the tax falls on you: add $700 of documentary stamp tax on the mortgage and $400 of intangible tax. Total cost $9,055 on the base example.
• The property is in Miami-Dade: the deed tax rate is 60 cents per $100, with the 45 cent surtax on top unless the deed transfers only a single-family dwelling.
• The end buyer’s wire misses its cut-off and the loan runs past the day: the cost is whatever your lender’s extension terms say, which is why that is the question to ask first.

When an assignment is cheaper

An assignment is cheaper whenever it is available. You sell your position in the A to B contract to the end buyer for a fee, the end buyer closes directly with the original seller, and there is one closing, one deed and no funding.

On the example above, an assignment at a $40,000 fee removes the funding fee, your side of a second closing, the owner’s policy you would have paid as seller, and the tax on a second deed. Most of the $7,955 disappears, and what remains is whatever your assignment agreement puts on you. Ask the closing agent how the fee will be treated for documentary stamp tax before you set it; the guide to a Florida assignment of contract explains why.

The double close earns its extra cost when an assignment is not on the table. In the standard Florida residential contract, assignability is a box, and if none is checked the buyer may not assign. Some institutional sellers do not allow the buyer named in the offer to be changed. Some end buyers’ lenders will not accept an assignment: FHA-insured loans, for one, require the property to be bought from the owner of record with no assignment of the sales contract, and generally make a property resold within 90 days of the seller acquiring it ineligible, so an FHA buyer suits neither structure. And some spreads are large enough that showing them to both parties puts the deal at risk. In each case the comparison is not a double close against a cheaper assignment. It is a double close against no deal.

What it costs when the deal fails

In a failed deal, the funding fee is not the number to worry about. What a failed double close costs you depends on where it fails, and at two of the three points below what is at risk is your deposit, or a property you never meant to own.

On the example, an illustrative $5,000 deposit is already larger than the $3,000 fee. If you are unsure what your contracts commit you to when a leg fails, ask a Florida real estate attorney before you sign them.

• Before the A to B closing, because the end buyer walked: the lender will not fund with nothing to repay it, and your deposit is exposed. Under the standard Florida contract, a buyer who fails to perform can lose the deposit to the seller as agreed liquidated damages.
• After the A to B closing, because the B to C did not fund that day: you own a property you meant to hold for hours, under a loan never priced as a hold. Depending on the lender it becomes due, converts to a short-term loan at a stated rate, or starts running extension charges, and the property’s taxes, insurance and upkeep are now yours.
• At the B to C table, because of a title problem on the first leg: the second deed cannot record until it is cleared, and the clock on the funding keeps running.

Build the whole cost into the offer

The time to price a double close is before you sign the A to B contract, while the purchase price is still yours to set. After that, every cost on this page comes out of a spread that is already fixed.

Entrusted Capital is a direct lender that funds the A to B leg of Florida double closes the same day, priced per transaction, with no credit pulled for that leg.

• Get the funding fee in dollars at your A to B price, including any minimum, processing fee and extension terms.
• Ask the closing agent for an estimate of your side of both closings before you sign the B to C contract.
• Compute the deed tax on both deeds at the county’s rate.
• Read the closing cost and title insurance paragraphs in both contracts, and mark which costs are yours.
• Ask how the funding is documented, and whether a recorded mortgage adds tax.
• Subtract all of it from the spread, and decide whether what is left is worth a day on which two closings must happen in order.