Conventional Mortgage or Local Bank/Lender?

Question

Hi,

Which is the best way for lending if I'm focused on SFR or multi family rentals?  Do I develop a relationship with a local bank and get loans through them so that I won't have to worry about reaching a limit of loans, jumping through hoops, etc. and in doing so, I'll pay a higher interest rate (5% vs. 4.5%), shorter term (20 year vs. 30 year) and ARM (5 year)?  Or do I use a conventional lender (4.5% for 30 years with 20% down) for my first 10 properties then try to find a local bank/lender to help me after I've reached the limit?   Obviously, based on which way I choose, this will affect my cash flow.

Hadar Orkibi · Answer

In my opinion for buy and hold, Single Family its best to start conventional as these offer the best long term fix rates.

for SF houses 20% down and Amortisation up to 30 years - best for cashflow and cash on cash returns.

Once you go to small multi family 2-4 units, these are still conventional but mostly require 25% down and slightly higher rates.

When you go for 5+ units its classified as commercial with different rules and regulations. typically shorter fix loan and shorter Amortisation, and higher rates.

I checked with my conventional lander this week and interest rates have gone up to low 5%s.

this was quoted for 2- 4 units. (gone up last week)

A broker will be good way for you to shop around, or if you need a lender feel free to PM me and i can refer you to the ones i use for conventional loans.

Hope that helps.

H

George Despotopoulos · Answer

Broker will find you the best rates but will also charge you points for their service. I would think it's best to exhaust conventional financing first. Take advantage of the cheapest $$ you can get while it's available.

Tyler Delbert · Answer

@Erin Gray My best advice would definitely be a residential Mortgage Broker. A broker offers the ability to to find the best available rate from the many lenders/investors they work with. DM me for any questions!

Jeff Dulla · Answer

@Erin Gray Find a well reviewed, residential Mortgage Banker. Basically they will shop rates like a broker but handle the process, closing, and funding in house. Maintaining control. It’s the best mix and most of the best educated, most consultative lenders are mortgage bankers.

Sean Tarpenning · Answer

Many of my investors go conventional. If you need any lender recommendations, shoot me a PM. Good luck!