Sticker Shocked By 5.50% 30yr Fixed Rate, Pre-approval Shopping?

OP

New to Real Estate · Providence, RI · Member since 2020 · 15 posts · 14 votes

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Tim Herman

Member since 2018 · 2k+ posts · 1k+ votes

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@David Emerson The feds voted on March 17 to have 6 more rate increases before the end of the year. This might be the lowest rate you see this year. Maybe the prices will drop as the rates rise but who knows.

OP

New to Real Estate · Providence, RI · Member since 2020 · 15 posts · 14 votes

4y

Quote from :

The feds voted on March 17 to have 6 more rate increases before the end of the year. This might be the lowest rate you see this year. Maybe the prices will drop as the rates rise but who knows.

Hi @Tim Herman, yes I look at things two ways. Either 1) rates move higher from here and re-trace later in 2023/2024 at which point a re-finance is always an option, or 2) rates move higher and stay high, in which case at least I've locked in a rate that's substantially better than market rates. Part of my work is in fixed income asset management, so I spend a great deal of time fixating on our interest rate environment.

My question was more about can I get multiple pre-qualifying offers without continuous hard inquiries/negative hits to my credit? I've seen rates as low as 4.5% today. I know these things are very regionalized, but at 5.5% currently I can't help but think there is a 4.75% / 5% rate in my area from another qualified lender. Because if rates move higher and stay higher than that would be a great advantage. I just don't want to go through the work of doing that if it's going to do more harm than good.

Does that make sense?

Steve Vaughan

Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes

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I remember it being within 30 days we are not credit penalized for shopping the same loan type but I haven't borrowed conventionally in a while.

Unfortunately the higher rates are doing what they are designed to do- cooling or pausing / second guessing investor demand.

8 Reply

OP

New to Real Estate · Providence, RI · Member since 2020 · 15 posts · 14 votes

4y

@Steve Vaughan Thanks for the insight!

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

4y

Quote from @Steve Vaughan:

I remember it being within 30 days we are not credit penalized for shopping the same loan type but I haven't borrowed conventionally in a while.

Unfortunately the higher rates are doing what they are designed to do- cooling or pausing / second guessing investor demand.

Agreed Steve going to take a little while for the new reality to sink in.. then I feel it will bounce back once folks adjust.

everyone cried it from the mountain that these rates we enjoy last few years could not last and expect them to go up.. And well its happening and rates are just going to bounce back to historic norms .. keep in mind the fed is not buy MBS as much and now its private investors and like us (private investors ) we dont like 2 to 3.5 % returns on our money why would we expect others to.. WE like 5 to 7% with little risk which is what MBS are I think to the big players out there.

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Scott JohnsonBusiness Member

Specialist · Greenville, NC · Member since 2019 · 673 posts · 408 votes

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@David Emerson, I recently spoke with a lender at Truist who said they have a "12-month rate lock". You do have to have an address/property under contract and there is a refundable deposit. Otherwise, you may want to try to find some off-market deals where the numbers work with hard money and then refi out.

Hope this helps!

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

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Quote from @Joe Villeneuve:

Quote from @David Emerson:

Hey BP Community! I recently got a pre-approval back from a great mortgage lender but was a bit sticker shocked when it came back at 5.50%. I know rates have moved quick over the past few months and can vary amongst regions, but to go from 3.5% in late December to where it's at now is crazy to me. And I know they'll be moving higher from here.

With that said, I was told from a couple of people there's a certain period of time after you apply for a pre-approval where you can go and apply for other pre-approvals without the temporary negative hit to your credit from a hard inquiry. Is that true? If so, what's the length of time you can do that? I've heard 2 weeks and 1 month, from completely different sources.

For extra context, I'm looking in the Southern MA area; 02601 zip code if we're being specific.

I would like to keep the potential future business with the current mortgage lender, but if there is a large enough discrepancy in rates I may want to consider placing it elsewhere. I'm just trying to avoid too many negative hits to the credit if possible (not that I have bad credit, I just fixate on it like a nut job).

Thanks!

If you had the following property:
1 - Buy = $200l
2 - DP = 20% = $40k
3 - Loan = $160k
4 - Pmt at 4.5%/30 yrs = $811/m
5 - Pmt at 5.5%/30 yrs = $908/m
6 - CF at 4.5% = $499/m
7 - CF at 5.5% = $402/m

...would the impact of the higher interest rate change you decision to buy or not buy this property?

exactly going to stay out of the game over 1 to 2k a year.. plus the extra interest is a write off any way.. if you feel the properties wont appreciate at all or rents wont rise a bit then maybe take pause .. just back to normal thats all. Just like we would all like to be buying properties at the prices in 2010 or 2011 or maybe we should go back to 1969k when a house in Cupertino my parents paid 25k for is now worth 3 million.. woulda coulda shoulda

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Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

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Quote from @David Emerson:

So you would base your decision on a percentage, not buy a property that was cash flowing at $4800/year, and just sit on your money?
When was the last time you spent a percentage?
What if there was never a 4.5%, and just the 5.5% interest rate?

Matt Lyons

Rental Property Investor · Chicago, IL · Member since 2019 · 109 posts · 443 votes

4y

@David Emerson if the math works the interest rate does not matter. If you buy for cash flow and it cash flows at 5.5 then it works. If you refi later it will work better. Don’t worry about the rate worry about the cash flow. If it works it works

Brian Salazar

Lender · Dallas, TX · Member since 2019 · 41 posts · 14 votes

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@David Emerson

1. You have a 45 day window after the first Credit pull for other companies to pull your credit and it not affect you

2. The first company should be able to provide you with your middle score. With that score, plus a few other pieces of information, you should be able to get a rate quote from a lender without doing an application. If a lender won’t give you a rate quote without pulling credit then don’t do business with them.

3. Getting a rate quote now may be able give you a point of reference of how they compare with your first lender, but it’s somewhat useless in making a final decision. Lenders can adjust their margins of criteria from time to time, so the lender who is lowest today may not be in two or three weeks. Also, most lenders aren’t going to lock a rate for you until you have a property under contract, so what they quote now may not be what’s available then. There are a couple of exceptions to that rule that will lock at pre-approval, but I don’t know how their rates compare. Otherwise, The time to shop rates is when you are close to going under contract.

4. If this an investment property, 5.5% is about where rates are at now, give or take a little. If it’s a primary that’s a little high. Of course that depends on where your credit scores are.

Bruce WoodruffPro Member

Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes

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@David Emerson Forget interest rates....they are highly overrated in importance. The monthly payment - as @Joe Villeneuve pointed out....is not that much different. You would really pass up a good opportunity for less than $100 a month? Really? You probably spend that on coffee, beer or scotch every month.

Just for reference, my first house came with an interest rate north of 16%......

4 Reply

Salvatore Lentini

Rental Property Investor · Doylestown, PA · Member since 2008 · 1k+ posts · 1k+ votes

4y

@David Emerson - you have a 45 day window to shop around. Not that you'd want to wait that long in this environment. I wouldn't sweat it though. A credit pull doesn't affect your score that much and it bounces back after a few months.

Michael Hill

Real Estate Agent · Houston, TX · Member since 2022 · 15 posts · 11 votes

4y

Hey @David Emerson

I just recently got a rate locked in for a single family investment property at 5.50% as well. So while it is a little bit frustrating knowing that I could have got a rate in the 3s only a few months ago, it seems as mortgages rates will only continue to increase based on the recent news about rate hikes from the fed. Also, while a rate of 5.50% seems high compared to recent memory of the last few years, it is still very low historically compared to interest rates over the last 50 years. Based on this, it is my opinion that it is best to get a rate lock as soon as possible if you are currently buying a property before the rate creeps upward any further.

In regards to your question about a pre-approval's affect on your credit score, you have a window of at least a month where you can apply for multiple pre-approvals without each individual hard credit inquiry affecting your score. Instead, all of the credit pulls from pre-approvals during that time frame will only carry the weight of a single credit check on your score, which in my experience is no more than a hit of 5 to 7 points. As a real estate agent in Houston, I advise my clients to take advantage of this and apply for pre-approval with at least 2 different lenders in order to get the best loan terms. If you have a good relationship with this mortgage lender that you are currently working with, then you might be able to leverage a lower quote from a different lender to negotiate better loan terms with the lender you want to use, such as lowering a loan origination fee.

Mike Dymski

Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes

4y

Members covered your question above.

There is commentary in the thread about future rate increases by the fed and that leading to more increases in mortgage rates. The fed funds rate does not drive mortgage rates...the 10-year treasury rate does and it has already adjusted based on market expectations for future fed rate increases. Will mortgage rates go up or down from there? No one knows.

3 Reply

Bruce WoodruffPro Member

Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes

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Actually the rising rates may benefit some buyers that 'get it'. There will be many people who are scared off by the higher rates and that should create more inventory......we'll see I guess, just a thought.......

OP

New to Real Estate · Providence, RI · Member since 2020 · 15 posts · 14 votes

4y

Quote from @Joe Villeneuve:

Quote from @David Emerson:

So you would base your decision on a percentage, not buy a property that was cash flowing at $4800/year, and just sit on your money?
When was the last time you spent a percentage?
What if there was never a 4.5%, and just the 5.5% interest rate?

Hi Joe, I think we're on different pages here, sorry about that. What I'm saying is not that I plan on sitting out based on 5.5% alone. My question revolved around the ability to get multiple pre-approvals in order to see if there was a 4.75% - 5.25% rate still in my area now. Because who wouldn't prefer a 5% rate over a 5.5% rate today if they can get it, right! If 5.5% is the going rate everywhere in my area then I will take what I can get, but you don't get the answers to questions you don't ask.

@Steve Vaughan, @Scott Johnson, @Brian Salazar, and @Salvatore Lentini thank you all for your insight and providing some extra detail! And apologies to anyone who was interpreting this as the end-all-be-all of whether a couple percentage points would keep someone in or out of a market.

OP

New to Real Estate · Providence, RI · Member since 2020 · 15 posts · 14 votes

4y

Quote from @Michael Hill:

Hey @David Emerson

I just recently got a rate locked in for a single family investment property at 5.50% as well. So while it is a little bit frustrating knowing that I could have got a rate in the 3s only a few months ago, it seems as mortgages rates will only continue to increase based on the recent news about rate hikes from the fed. Also, while a rate of 5.50% seems high compared to recent memory of the last few years, it is still very low historically compared to interest rates over the last 50 years. Based on this, it is my opinion that it is best to get a rate lock as soon as possible if you are currently buying a property before the rate creeps upward any further.

In regards to your question about a pre-approval's affect on your credit score, you have a window of at least a month where you can apply for multiple pre-approvals without each individual hard credit inquiry affecting your score. Instead, all of the credit pulls from pre-approvals during that time frame will only carry the weight of a single credit check on your score, which in my experience is no more than a hit of 5 to 7 points. As a real estate agent in Houston, I advise my clients to take advantage of this and apply for pre-approval with at least 2 different lenders in order to get the best loan terms. If you have a good relationship with this mortgage lender that you are currently working with, then you might be able to leverage a lower quote from a different lender to negotiate better loan terms with the lender you want to use, such as lowering a loan origination fee.

Thanks Mike!!

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

4y

Quote from @Bruce Woodruff:

Actually the rising rates may benefit some buyers that 'get it'. There will be many people who are scared off by the higher rates and that should create more inventory......we'll see I guess, just a thought.......

this is very true..

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Shane H.

Member since 2018 · 433 posts · 208 votes

4y

@Joe Villeneuve

I must have missed something... i thought he asked about shopping a better rate. Are you guys condemning rate shopping? I did see him say the rate is influencing his decision. Id go so far as to say if the rate isnt "influencing your decision," youre wreckless. In the example you gave it was 12 or 15 percent COC. Thats a significant difference but both in the buy range. In areas where youre lucky to get 5% COC would you still not care if it pushes you to 2%?

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

4y

Quote from @Shane H.:

@Joe Villeneuve

I must have missed something... i thought he asked about shopping a better rate. Are you guys condemning rate shopping? I did see him say the rate is influencing his decision. Id go so far as to say if the rate isnt "influencing your decision," youre wreckless. In the example you gave it was 12 or 15 percent COC. Thats a significant difference but both in the buy range. In areas where youre lucky to get 5% COC would you still not care if it pushes you to 2%?

Percentages lie...and they appear to be doing so here. I don't care what the percent return I get. I only care about the numbers with $$$ in front. Since my cash is always moving through deals, and not stopping and vacationing in them, the percentage drop only means it might take 4 times I need to move my cash through deals to equal what I was doing in only 3 times. In the end, I still end up with at least the same dollars, and I still haven't spent anything since the cash keeps coming back...with friends.

Scott JohnsonBusiness Member

Specialist · Greenville, NC · Member since 2019 · 673 posts · 408 votes

4y

Quote from @Bruce Woodruff:

Actually the rising rates may benefit some buyers that 'get it'. There will be many people who are scared off by the higher rates and that should create more inventory......we'll see I guess, just a thought.......

Truth

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David Dachtera

Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes

4y

Quote from @Steve Vaughan:

I remember it being within 30 days we are not credit penalized for shopping the same loan type but I haven't borrowed conventionally in a while.

Unfortunately the higher rates are doing what they are designed to do- cooling or pausing / second guessing investor demand.

Actually, it's 45 days. Multiple inquiries for consumer home loans are "de-duplicated" to a single inquiry.

Mind you that's 45 days from the date of the first inquiry. Ask your loan officer to explain it.

As for interest rates, my brother got married in the early 80's. His home loan rate was 15.5%.

Cody L.

Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes

4y

Quote from @David Emerson:

Hey BP Community! I recently got a pre-approval back from a great mortgage lender but was a bit sticker shocked when it came back at 5.50%. I know rates have moved quick over the past few months and can vary amongst regions, but to go from 3.5% in late December to where it's at now is crazy to me. And I know they'll be moving higher from here.

With that said, I was told from a couple of people there's a certain period of time after you apply for a pre-approval where you can go and apply for other pre-approvals without the temporary negative hit to your credit from a hard inquiry. Is that true? If so, what's the length of time you can do that? I've heard 2 weeks and 1 month, from completely different sources.

For extra context, I'm looking in the Southern MA area; 02601 zip code if we're being specific.

I would like to keep the potential future business with the current mortgage lender, but if there is a large enough discrepancy in rates I may want to consider placing it elsewhere. I'm just trying to avoid too many negative hits to the credit if possible (not that I have bad credit, I just fixate on it like a nut job).

Thanks!

Dec a bank refinanced a large $28m loan for me for 2.99%
Feb they did another for me for 3.39%
March they did another for 3.5% (and said I was lucky to get in just in time)
Today they're quoting 4.25%

All 10 year terms -- 5 year fixed + 5 year reset based on prime +.25%. 70% LTV, 25 year am, recourse, bla bla bla.

[edit: This is commercial multifamily. not 1-4 family 30 year freddie type stuff]