Lender is charging a higher FHA rate because it's a multi-family?

Question

Hi all. I am in the process of purchasing a triplex with an FHA loan. I started shopping around with a few different lenders on Friday, but only one has gotten back to me with concrete numbers after I submitted a loan app. She quoted the interest at 3.625% for 30-yr fixed. I was expecting the interest rate to be lower than a conventional rate - not higher. Am I mistaken here? When I asked her about it, she mentioned that the rate is higher specifically because it "will be an income-producing property."

As I mentioned, I am shopping around and will be following up with other lenders tomorrow to make sure I am getting the best option regardless. But should I be expecting the rate to be higher than conventional??

Stephanie P. · Answer

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Stephanie P. · Answer

Rates are still in the 2's for FHA purchases for borrowers with decent credit. You should shop around.

Russell Brazil · Answer

Multifamily has a pricing adjustment upwards verse single family.

Brenden M. · Answer

Thanks for the reply. I actually just heard back from another lender who is quoting 2.875%, which will save me almost $200 per month compared to the 3.625% quote.

David M. · Answer

@Brenden M.

Hmm... I think you are under what I think is the usuals "sales/marketing" stuff about FHA loans over conventional.

Actually, conventional loans are "better" than FHA. If you have "better credit score" and better income, the conventional is usually the way to go. You can even go as low as 5% down.

Oh, what is that you say? Your credit score isn't stellar.... Oh, a little short on savings.. Okay, I've got this other loan product which is backed by the Federal Gov't (the portion below 20% anyway). You can do 3.5% and since the Federal Gov't is backing it, you can get the mortgage insurance (because with a less than stellar credit score the private market won't cheaply take the risk to issue you private mortgage insurance). But, its going to cost you...

Do you see? Lets face it.. the 30s sound bites and short articles like those sent out by BP don't, and understandably can't, cover the details. The FHA loan is touted, in my opinion, as the "go to / panacea" loan as I see it. But, that product was created by the Government to support home ownership for those that actually, well... didn't qualify on the regular market. One little additional peeve of mine is that the MI doesn't come off a gov't backed loan. At least with a conventional you can get the PMI off.

Oh, and for multi-families at least the FHA allows for 3.5% down all the time as I understand. Conventional loans have increasing money down requirements which tops out at 25% as I recall. So, there is one benefit to FHA, but you still pay for it...

Good luck.

Brenden M. · Answer

I was always under the impression that owner-occupied FHA loans would have a lower interest rate compared to a conventional purchase. It looks like I need to do some more research

Lender is charging a higher FHA rate because it's a multi-family?

Lender is charging a higher FHA rate because it's a multi-family?

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