Do all lenders charge origination points?

Question

My wife and I are looking to invest in a single family short term rental property. We've had our fair share of hurdles since making the decision. The newest one is that our lender just told us that we will have to pay 2 to 2.5 points for the investment loan. This of course is taking away a good amount of cash that we had considered using for our down payment. And since we are using an investment loan, we are required to put down 20%. This has lowered our purchase amount so much that we are now not finding any turnkey properties that we would feel comfortable listing on AirBnB.

My question is, do all lenders charge points? The person we are working with is an investor-friendly mortgage broker. Would we be better off going directly to a bank or credit union? Do they also charge points?

Jonathan Taylor · Answer

@Nate Bartlett a few things to clarify. First, points can mean a few things and some of the forums here can confuse the two. Charging points at the close of a loan mean a percentage of the loan amount that is paid for origination. Brokers and some direct lenders MAY charge these and vary from lender to lender. Second BUYING down points means you are paying an extra cost at closing to get a lower rate. The latter has nothing to do with origination costs as its a choice for the borrower to do so if the lender has that option.

So to circle back on your first point, its takes labor and effort to close a loan, origination charges (processing, doc fees, etc) are to compensate for the labor for those working your loan. On small loan sizes (sub 200k) 2-2.5 points in origination charges are common for asset based/DSCR style loans. I dont know all lenders or all situations so there will be exceptions here but the costs to originate need to be included in your numbers when analyzing a property.

Danielle Jackson · Answer

Lenders or brokers are getting paid one way or another.

If it’s not an up front origination point or points, then they will charge it on the back end ie your rate.

Christopher Wilke · Answer

As a broker your lender is more than likely getting compensated by the origination fee. The lender will make their money with the loan/interest and the broker gets paid through the origination fees. I have not seen a whole lot of investment lenders will allow a broker to be paid through the lender (by increasing the rate).

Matthew Crivelli · Answer

If you are taking a loan out to purchase an investment property you will pay the lender in one way or another. Low or no points? You get a high rate and the money comes over the life of the loan. Higher points with a lower rate? They get it upfront. Is there a pre payment penalty? You pay again if you refi OR sell.

As you can see, unless you are taking a loan out to buy a personal home. You will pay fees for the loan one way or another.

Nate Bartlett · Answer

Thank you. I will ask for sure.

Wendy S. · Answer

@Nate Bartlett

I would definitely shop around. You can still get 15% down with excellent credit and no points but higher rates.

Dave Skow · Answer

@Nate Bartlett 1) there are many lenders  that  allow 15% down for  sfh  rental  purchases   2)  you should be able to pay lower loan fees ( points ) - this may require you taking a  higher interest  rate  than the one offered  with the  2.2.5 points ...ask  you lender for  higher  rate / lower  fee  options

Brian Salazar · Answer

@Nate Bartlett

As has already been mentioned to you, down payment requirement on a single-family home investment property on a Conventional loan is only 15%. Of course you will pay mortgage insurance by doing less than 20% down. As far as the rates and points, it depends on several factors. At the first of the year FHFA added a substantial fee for second homes and high balance loans.  That seems to have affected investment properties as well within our pricing structure.  I work at a credit union that is usually very competitive on rates. However, since the first of the year I have seen fewer and fewer rate stacks that offer any rate options without points on investment properties. Also, your credit scores and the loan amount can have an affect on where the rates are. Definitely recommend you shop around￼

Jonathan Taylor · Answer

@Nate Bartlett From you investor contacts, ask the lender and situation. 15% down on an investment property SFH with no points is something I would question heavily. That sounds too good to be true and SOMETIMES Banks or credit unions can offer different options to clients with depository or long term relationships. These loans typically are not brokered so its possible but for my clients (Im a broker) I offer 20% down.

I'm CA based and I have CA lenders who can have programs that can do 15% or 10% down on an investment property but that is property, location, and scenario specific. I don't advertise that since it's a tight needle to thread so I don't lead with this option. 98% of the time, its 20% down.

Do all lenders charge origination points?

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