Quick question, I'm in the market for my first investment property and the first mortgage company quoted me 5.427% on a 30 fixed mortgage. The 2-3 family units I'm looking at are between 55-70K. One company told me that they couldn't lend money for investment property under 100K and asked that I raise the amount (which is asking me to take on more debt to meet their standards). My question to you, is this rate unreasonably high for someone with fair credit investing in a rental unit? I am in the process of cleaning up my credit reports which should move me up to "good" in the next 3 months. I was hoping to have something fixed up and fully rented before winter comes around.
I'm not 100% sure I'm getting the details right here. Are you saying the bank has a minimum loan amount of 100K but they are willing to lend you that much and have it secured by more than one property? What is their loan-to-value requirement?
As far as the rest of your question: I'm not following rates too closely right now but on the face of it, a 5.427% 30 yr for a non-owner occupied mortgage seems pretty good to me. Especially for a new investor only fair/good credit. Non-owner-occupied loans pretty much always involve larger downpayments and higher rates than an owner occupied loan would.
Current mortgage rates look to be about 4.25-4.5%. Those (advertised) rates are always for OO loans. An investor will pay half to a full point more. So, you appear to be in the right ballpark.
My understanding for a "good" credit score would be 720 or higher. 750 or higher for the best rates.
Thanks @Jean Bolger The 100K was a reference to another company that wouldn't lend for a purchase price under that amount. Didn't mean to confuse.
Thanks @Jane A. . I agree, the loan amount will be in the 59-64k ballpark so that could also contribute to the rate. In any event, if the property is fully rented I should be able to pay an additional $150 in mortgage payments to accelerate the term and pay less. I found this website that has a "payoff calculator" which is awesome.
Forgot to post the link
Yup, Jon is right, expect to pay .5% higher for an investment property, even with excellent credit. You will also have to put down 20% for a SFR and 25% for a multi (2-4 unit). Once you get past loan #4 (including your own home mortgage) expect to tack on another 5% to your down payment.
My bank was willing to lend on a purchase price as low as $50k with a 30 year fixed, you might find the same if you shop around.
I see. Yep, you'll find that a lot of lenders don't want to bother with smaller loans (Most banks will be selling the loan after they originate it, so they basically make all their money off of the fees which are based on the size of the loan). So you'll probably have to do some of searching around to find a lender that will work with you on that type of property.
Thanks everyone, this information really helps.
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