How do you shop for interest rates on small loans?

Question

Hello. We are getting ready to buy our first buy and hold property. We live in Alexandria, VA. We intend to buy in the Cleveland, Ohio area. Our brokers and lenders in our local market that we have worked with before don't do small loans. Our loan will be $80k or less. We are looking to buy a multifamily first (2-4 units). We have talked to one lender in CA that will work with us but need direction on how best to shop and compare rates for a small loan before we lock. In the past, I have started with Bankrate and then called the brokers we have worked with in the past. I have received about 3-4 quotes before I locked.

Thank you for pointing me in the right direction. I am also a member of PenFed but they don't do these types of loans so they won't rate quote us.

Chris Mason · Answer

Google search "poorest zip code in Ohio," and find out who is doing those mortgages. Those are the people and institutions that will be interested in doing baby loans.

If you walk into PenFed (I broker to them, so I'm familiar -- great jumbo products!), or any other lender local to Northern Virginia (from what I know of NoVa), they are going to think of an $80k loan as an act of charity, and may only do it if you are a loyal repeat customer. That's probably why no one in NoVa is getting back to you -- rather than presenting yourself as a loyal repeat customer, you're doing the rate shopping thing.

If you want to go that route, it will have to be with lenders that don't consider $80k an act of charity. So, lenders in poor rural Ohio, where the property is.

Federico Gutierrez · Answer

Simple question... YOU take whom ever is wiling to give you a loan at a decent rate. Most lenders don't want to touch small loans because they make no money at under $80,000, sometimes actually lose money. It's that simple then you have investors whom want to shop around for 0.5 to 0.25%. When you do the maths it's like $20-50dollars a month. IF you can't afford to pay that extra $20-50 to be able to use conventional financing maybe you need to reconsider real estate investing is not for you. Sounds cruel but thats the fact of the matter you shopping around for pennies in the overall picture. Many clients of mine never see the BIGGER picture just an interest rate.

BTW did you know those extra $20-50 your trying to save can also be tax-deductions? So why are you worrying, it makes no sense. Find a lender willing to give you a loan and take it.

Stephanie Medellin · Answer

@Deanna S. I have to agree with some of the other responses here. The monthly payment on a 30 year loan for $80,000 increases $6.00 for every 0.125% increase in rate. Six dollars. On a 15 year loan the difference is just about the same - $5-6 for every 0.125% in rate.

I think you're asking how to compare rates because while you're finding generic rate quotes online (that most likely don't apply to your scenario anyway), you may be finding that when you call those lenders they won't actually do a low loan amount, so getting a rate quote from them is irrelevant.

I'm all about getting the best deal but sometimes you have to recognize that when you are lucky to even find someone willing to make the loan, you should probably be happy and take the offer. Otherwise you're going to be investing a whole lot of time for very little return. This would be true for anyone with a more difficult or unique scenario - i.e. if you're getting a hardship or extenuating circumstances exception for something on your credit report.

Just look at what some people experienced when rates jumped after the election. If they spent too much time rate shopping, they missed out on locking in when rates were lower, wiping out any "discount" they found by shopping around.

Deanna S. · Answer

Thanks, @Stephanie Irto. Point well taken. Makes complete sense and we do have a lender. I don't want to invest time in the wrong places. Thank you, again, everyone for your responses.

Deanna S. · Answer

Thank you. Great ideas everyone. Love how you all think big for this newcomer.

Chris Jackson · Answer

@Deanna S.

Call the local Federal Credit Unions. The AMs will be more like 20 and 25 years but there is usually no prepay and the local banks know the area really well.

They do small loans as well. Great opportunity to build a relationship with local banks for when to take down a 10,20,30, 50 plus unit :)

Deanna S. · Answer

Just to clarify, we are planning to do conventional financing. I would appreciate help on the best places/ways to shop for a rate with a small loan. Are there any reputable websites? Thank you.

How do you shop for interest rates on small loans?

How do you shop for interest rates on small loans?

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