First investment property - Paying points to get 5%. Why?

Question

I'm going through the loan documents and noticed I'm paying for 3.376 discount points to get a rate of 5%. I have a FICO of 814, excellent credit history, and interest rates are low - why am I having to pay points to get 5%? Are mortgage rates for investment properties higher by nature or am I needing to shop around?

Thanks,

Wayne

Thanks,

Wayne

Brianna H. · Answer

Absolutely shop around! I just bought an investment house with a rate of 4.5% and my FICO is lower than yours (probably around 780 or so). My advice is to get at least 3 different lenders quotes and compare them.

Russell Brazil · Answer

you should be able to get a 4.8, maybe 5% with no points. But do keep in mind your FICO score is only part of the equation. If you have a high debt to income ratio, that can push your rate higher. Also if it is a Freddie loan it is going to be higher than a Fannie loan.

Steve Babiak · Answer

I'll guess you are using a mortgage broker so some of the points go there. Find out what the interest rate is without buying it downward with points, and then you will know what the discount is that the points are paying for. Sometimes points are paid to adjust other loan terms - see if that is going on.

Charlie Fitzgerald · Answer

Shop!  That's way too much for that rate.  Somebody is getting greedy.

James W. · Answer

I agree with the above - sounds way too high, especially with your credit score.

I work with 2 banks and I pit them against each other. One is US Bank, and they give me prime + .25 on a variable 3-5 year loan amortized at 15 years. The other is a smaller bank that gives me the exact same rate, but they are more flexible with their approval process which allows me to do more creative deals. The reason I use 2 banks is to ensure neither one of them ever get too greedy and it keeps them competitive for my business.

Bryan Hancock · Answer

Amerisave has some very competitive rates along with rate/point tables.  I would start there.  The Mortgage Professor also has a list of Upfront Mortgage Lenders here:

Upfront Mortgage Lenders

Technology can allow you to avoid "shopping around" incessantly as has been suggested.  I think you'll be hard-pressed to find better rates than what Amerisave offers.

James Syed · Answer

Welcome to BP.

Keep shopping. Points are prepaid interest. Don't pay it especially if you will be refinancing in 5 years.

Upen Patel · Answer

Appreciate the vote of confidence.

Upen Patel, Mortgage Banker

Federal NMLS# 1374243

Brady Hanna · Answer

@Wayne Solum-I would definitely shop around if I were you!  I would find a local portfolio lending bank that you can form a relationship with.  Out of the 5 rental properties I have bought, the highest rate I have paid is 5% and all of those are with no points.

First investment property - Paying points to get 5%. Why?

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