@Ryan Lee I mean, "significant" is a little open to interpretation but the rates/pricing will be different. The best way to know for sure is to speak with a loan officer that can tell you what pricing is for you specifically. Do you know of any in your market? If not, there's a little "Lenders" button at the top of this page that you can click on to find one. You can also lean on some other real estate investors in your area on who they use. It takes us about 60 seconds to find out what pricing is for someone so it's usually not that big of a deal to just ask a loan officer.
The rates would not differ much, but what you would find is that you will probably pay less in points by putting 25% down. That will be where the real difference would be most likely. Hard to say for sure without know a bit more details
Depending on the lender for a DSCR rental property loan, rates will be about 0.125% to .25% lower if you put 25% versus 20% down on an investment property purchase if it's the same borrower credit score and profile being analyzed.
More on DSCR loans loans if you decide to go that route:
DSCR loans won't use your income to underwrite the loan which is what conventional loans will use to underwrite the loan.
DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.
Here's a bit more in detail about how rates are calculated for DSCR loans:
1. Credit score- the higher the best. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.
2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.
3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.
4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.
I've included an example below to help illustrate this.
So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.
See example below:
DSCR < 1
Principal + Interest = $1,700
Taxes = $350, Insurance = $100, Association Dues = $50
Total PITIA = $2200
Rent = $2000
DSCR = Rent/PITIA = 2000/2200 = 0.91
Since the DSCR is 0.91, we know the expenses are greater than the income of the property.
DSCR >1
Principal + Interest = $1,500
Taxes = $250, Insurance = $100, Association Dues = $25
Total PITIA = $1875 Rent = $2300
DSCR = Rent/PITIA = 2300/1875 = 1.23
If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.
DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.
Assuming no change in points or fees the rate difference between 20% vs 25% down is typically .50% -.625%.
If you are comparing the same exact interest rates then 20% will cost 1.625 -1.75 points more than a 25% down payment. There are a lot of different factors that can impact the rate differences so your scenario might be a bit different.
Are the difference in rates for 25% down and 20% down?
I see for Fannie Mae, investment properties, people can do as low as 15%.
I'm wondering if rates are significantly different for 25% vs 20%.
The way we do the 15% down is a two mortgage scenario. The first mortgage is at 75% (or sometimes 70%) which gives you more or less the same rate as if you were putting down 25%, then a second mortgage for 10% (or 15% if first at 70%). The second mortgage is at a higher rate but is also typically pretty small and easy to pay off early.
Yes, they are. I almost always recommend 25% down (if you have it available) vs 20% down. Plus, the cashflow is a lot better.
When people compare rates, what they are referring to is how much the cost is in "points" for that rate. The rate can be the same with 20% or 25% down, but the cost for that rate will be much less with 25% down.
You are correct that the lowest for INV properties is 15%, but the cost in points for that rate will be significantly more than 20% or 25% down. Its all about risk to the lender, which is why more leverage costs more money.
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