Is my rate competitive? Should I buy points?

Question

I am currently under contract for a fourplex and putting down 25%.

Not living in it.

I’m getting quoted 4.75% with zero points paid.

Is this competitive for today’s market?

Also Incase I decide to go with this lender should I buy down to 3.75% for $3750.

It’ll take me a year to break even.

Thank you.

Michael Acheampong · Answer

@Scott Wolf

My situation is a bit different. A lot of banks aren’t willing to finance it for me so I believe that’s why the rate is this high.

I just started a contract job and they said I have to be doing contract job for 2 years in order to qualify but I’ve only had it for 8 months.

This lender is willing to do it for me with 8 months of contract job.

Rodney Sums · Answer

First I would say check other lenders see if you can get a better rate.

What's your payment at 4.75 vs payment @ 3.75?  how many points will you have to buy to get down 1% in rate?

When I decide whether or not to buy points, I divide the cost in points by the savings per month.  That tells me how many months to recoup the cash spent buying points.

Then take that number and divide by 12.  That tells me how many years to recoup the cash spent buying points.  That number in years tells me if it makes sense based on my goals for that property.

I can go a step further and calculate the savings per year as a percentage of the cash given up to buy points.  Then I consider if I can get a better rate of return in another investment or by buying the points.

The change in your cash flow is also important to consider.

I'd ask other lenders what rate you could get assuming a middle FICO of 730 (based off what you said your credit is)  You may be able to get a little lower.

Those numbers tend to fluctuate a lot.  One day, 1 point will buy the rate down by 0.25%, the next day it may buy it down 0.5%.

Frank Hinck · Answer

@Michael Acheampong

If you’re keeping over a year which you probably would to get the turn around, and to qualify for a 1031 - I’d buy the points.   Plus if someone else can assume the loan when you sell it, or if you sell it Sub2 the lower rate will help you sell for more.

Mike S. · Answer

@Michael Acheampong

Is the title owned under your personal name or entity?

Will it be owner occupied?

What is the amortization time and duration of the loan? Is it a conventional one?

What is your credit score range ?

Ken Nyczaj · Answer

@Michael Acheampong if it only takes a year to get equal on the points paid it seems like it's well worth it if you plan to hold the property. We are getting quoted 3.99% for residential and commercial with only .5% on the points and 25% down on purchase and 20% down on reno with IO period if needed. It honestly seems a little high but I guess it varies everywhere...

Scott Wolf · Answer

@Michael Acheampong, that rate seems a bit high.  How many banks did you speak with?  I got 25% down with a 4.25 rate two years ago in a higher interest rate environment.  As for the points buy down, it's definitely worth it on what I'm assuming will be a long term hold.

Michael Acheampong · Answer

@Rodney Sum

Thanks for the advice.

Rodney Sums · Answer

@Michael Acheampong that's whats up, I'd take that savings for 3.7k

Rodney Sums · Answer

@Michael Acheampong yes if you get back the cash from points in just a year it definitely makes sense.  I'm assuming this property costs about 375k

Michael Acheampong · Answer

@Rodney Sums

The unit cost 250k. With 25% down I only need $187,500 from the lender.

Is my rate competitive? Should I buy points?

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