I think that you can find a better rate. That being said it all depends a lot on your credit history and relationship with your bank among other thing’s. If the numbers work and you are ok with the interest rate go for it. One thing to note is that the rate can be variable and you will need to factor that in to your numbers. Good luck!
how many years are they giving you at 5.75?
for purchase ive been seeing 30 years fixed 6.5XX with better credit slightly higher with ok credit.
Originally posted by @Roshan Bhula :
@Tom Ott would you recommend going to small local banks or credit unions for this? If so, are their rates typically on par with big banks?
Thanks in advance!!!
I would look for mortgage lenders over banks and one that is familiar with investment properties. They do not need to be local.
@Mo Muigai good question, not sure if this has been answered but this is what I do in CT for loans.
For 1-4 unit:
- I always start with a Fannie/freddie loan as its an owner occupant loan. That will be the least out of pocket cost and best debt. Right now 3.75% for a 30 year fixed. You can use a 3% or 5% down conventional with MI (mortgage insurance), or FHA loan 3.5% down with PMI, or USDA 100% loan (Rural single family purchase), or 203k Rehab loan(Like the FHA but you can finance in construction costs).
If it is a straight finance property here is how I underwrite:
- Assuming it is a 1-4 unit property, I try to stick with value add so I can force appreciation and create the equity. Otherwise you will have to put down 25% in most cases, and you will run out of money real fast.
- So I ask myself, do I have the debt to income ratio to qualify for Fannie Freddie debt, long term, fixed rate, 30 year, as an investor. 75% LTV, limit to 10 in your personal name. Gets harder as you go plus the paperwork is a "pain" IMO.
- If the first bucket can't work, then I look at local credit unions for portfolio loans, meaning they don't sell the note and can underwrite on their terms, but still want to see income in most cases. Im hearing 4.25% for interest, 30 year term, and 10 year adjustable.
- Then I look at the commercial side, now the property will have to debt service, and terms are 20-25 year term, 4.25-5% interest over a 5 year adjustable. No balloon which is nice, but you take on the interest rate risk as a borrower. Something you always want to shift back to the bank:)
- The next bucket I do IF I plan on keeping the property long term, want to move fast, need short seasoning, and don't have the debt to income to qualify. Rates are 6.3% now, can purchase the rate down to high 4% range, 90 day seasoning cash out refi, unlimited amount of loans, 2-3 week closing time and low doc.
So every deal is unique, your goal is to have relationships in each of these buckets, stay in contact, and underwrite each deal individually. You also have to understand your end goal, they you just put the best debt you can at the time and plan for the worst.
This is how I think on rate/terms:
- I never want a balloon mortgage. Banks will say they can refi you then, but Ive heard horror stories about banks calling notes due, even though they never missed a payment.
- I want fixed debt at all times, BUT this gets very hard once you step into commercial properties that are unique, or aren't playing in the 1M range loan balance.
- interest rate really isn't something I stress over, if I have long term debt and the property cash flows day 1. Again try to get fixed, if not get as long of an adjustable as you can. Rates are SO cheap historically speaking.
- Fees and points vary across the above, ranging in from cheapest to most expensive. I look at the opportunity cost and don't care too much about points, especially if Im pulling equity out, my tenants are now paying them:)
- Worry about getting more deals, putting good debt on them, purchasing for cash flow day one. And the rest is just management to have a good asset.
Sounds good to me
I would like to talk to you
Originally posted by @Mo Muigai :
@Eric Johnson I just quit pursuing that one and now I have another for over $200k. Can you finance that one? My credit is north of 720s.
I sure can get some options for you, shoot me a DM would love to see if I can help you out.
@Jill F. Oh that’s good!
@Keith Radke with whom please? I’d like to try them out
@Mo Muigai Glad to heat you aren’t the only surprises by this rate. I’m looking for investment properties around the same price range and have been quoted between 5-6%. Good luck!
@Mo Muigai that's not too bad especially if it's a fixed rate. I'm paying 8% on hard money and about 5.25% with community banks for investment property loans through my LLC. Typically maturity is 3 to 5 years.
@Mo Muigai that might be the why. Low balances under 100k tend to have higher risk of an investor walking away from it so banks tend to bump the rate.
That was the rate about a year ago, but 4.95 is what I’m paying now.
But it all depends on credit, etc. Ask for better. Worst they will say is no.
@Mo Muigai that’s a little high. I just got 4.75% with Bank of America.
I can give you a great example of why going with local credit unions would be better. Last year I also sought out an investment loan for a single family where the purchase price was 70k and the loan would be for about 53k. Quotes from BOA and Wells Fargo were high 5’s and mid 6’s. I spoke to my local credit union and they offered me a rate of 4.8%. Went with the local credit union..
@Joe P. You better consider the cost of refinancing when just trying to increase cash flow by only $50-60 a month. If the cost is say $1500 then it will take 30 months for you to break even and actually start getting the benefit of the refi. I have no idea of the refi cost in your case but you get the point. Many people just look at the rate and are always refinancing. This is not always good especially when you have had the loan for awhile and you are paying more and more principal each month.
@Tim S. Do you mind to share the name of the lender?
@Eve Cao Highlands Mortgage, Graham Parham.
@James Martin and you purchased them as investment properties?
Just to add to this post. I recently got pre-approved for 5% interest on 30 year but it was 25% down?? Just wondering if 25% is the normal downpayment for investment properties, think I have heard it was.
Originally posted by @Ivan Loza :
@James Martin and you purchased them as investment properties?
Yes sir. Investment, single family, in personal name, 80/20, 30 yr fixed.
Originally posted by @Tim S. :
@Eve Cao Highlands Mortgage, Graham Parham.Thanks, Tim
Update: I hit a 4.0% conventional loan, 25% down with Bremer Bank. Definitely much better than 5.75% offered by big sharks. Thanks everyone for your input