I am attempting to finance a rental property. I have never taken out a loan on a rental property before, since I’ve always paid cash for it. I am trying to scale my business up and not spend all my cash on one property, but instead use 20% for down payment and finance multiple properties. My lender advised me that an interested rate with Wells Fargo is 6.25% with 30 year fixed with 20% down. Does this even sound reasonable. In my eyes, it doesn’t but again what do I know.
The numbers make sense on the property, I would be cash flowing around $500 per month, plus I also would have immediate equity. So, the numbers are not the issue, I just can’t wrap my mind on that interest. Am i focusing on the wrong things and not seeing the big picture? What other options do I have? Assistance is much appreciated.
If your credit is good and you have other properties...I would wonder why so high also.
I believe that you should be able to get a better loan somewhere else.
If you look.
@Huso Akaratovic Interest rates can vary depending on your credit, income, DTI, etc. but 6.25% seems very high, given low interest rates right now. For investment properties, generally rates are about 1% higher, but 6.25% seems high.
This does seem high, but as others said your credit is taken into consideration along with the property type and loan amount. If this property less than $50k?
@Huso Akaratovic Go to community banks and credit unions and let them know what you need. I would work with smaller banks who offer more flexibility than with wells fargo on this stuff.
On I get it now it is a smaller loan. Big banks don't usually cater to those size loans for investments.
Just a quick FYI, a bank loans out say 1 million dollars a month....a low number but bear with me....
a percentage of those loans have to be in the small bracket under 100k then another percentage is between 101 k and 500 k and then there are loans over that say 501 k to 1 million.
This is know as being diversified-
A normal bank denies 5 our of every six loans for whatever reason....it could just be they have reached their quotas for the month.
If you have any questions just ask.
@Huso Akaratovic , I will be closing on a SFR next week, (my first BRRRR) using a local bank in Omaha. Terms are 5.5%, amortized over 20 years, loan is due in 5 years.
Personally, I despise WF and have as little to do with them as possible.
Based on your self reported credit profile you’re getting taken for a ride my friend. You need to contact an independent broker because your rate should be well south of 6%.
I made contact with a local bank. They advised that 30 year loan would be 6-6.25% just like WF. However, he mentioned that their 15 year mortgage offers 3.8%. The difference is approximately $45 in cash flow. Is this a no brainer? Or am I missing something again?
Also, I am kinda on a short time frame with this deal. It’s a wholesale deal and they want me to close ASAP. The banks are advising between 35-40. They said they can wait 35, but I need to make a decision no later then Friday. The banker at WF, I have an establish relationship with her and I knew she can get this with hassle free, while the new bank I have to start all over from the scratch. Thoughts?
@Huso Akaratovic , try Bank of Internet. I’m sure you’ll get a better interest rate, especially if you are a Costco member. Good luck on your investment journey.
For a property valued that low just get a personal loan. You should be able to get one for 5-7 years around 5%. You get the interest write off, leverage benefit (though scaled down), but unlike a mortgage still get the benefit of a more appealing offer of paying in cash
Well, do you have time to get approved with another lender and still maintain the existing deal? If so definitely do so since you're going conventional and can get a lower rate. That said, if you need to move quickly to keep the deal, and you're already approved with WF, go for it! You said the numbers make sense, so it should be a win if you've calculated everything correctly. My point is, don't get analysis paralysis and lose this deal. My two cents...
@Huso Akaratovic the loan amount is probably the reason for that rate! That said, a rate between what you are getting quoted, and say a rate 1% less, is going to be insignificant in the monthly payment.
@Huso Akaratovic take the 15Y in this case. It’s $45 more a month. No brainer in my opinion. Quicker mortgage payoff/reduction.
We're in the process of buying another rental right now and we were quoted 5.5% by Colonial with 20% down. I paid it down to 5%.
I’m closing on a cash out refi on a rental property I own outright tomorrow. The lender I used is giving me a 4.1% interest rate on a 15 year loan. My loan is for 140k. They may be able to give you a better rate on that small loan.
@John Morgan Who you banking with? I am planning to do the same.
I'm having the same issue, with the same numbers, except the property is 100k with me putting down 20-25k. I've tried WF and Chase.
Michele put it best you’re asking for a small
Loan and for that small of a loan the interest rate increases. Banks make an investment in lending you money and if they lend you what’s looks around 36k they’ll make very little on their return at say 4%. That’s why you’re getting quoted a higher interest rate.
Another item to be aware of the Federal Reserve has been on a slow and steady interest rate increase since 2015. Many of us listen to BP or have bought homes from a few years ago and hear 2.5-3.5-4.0 interest rates and think well I got that in the past I should get that now. The reality is that the benchmark is 4.25 now and that’s continuing to go up. Even after Federal Reserve chairman Jerome Powell announced yesterday there will be no interest rate cut for the near future unless the economy declines.
In addition to this it sounds like this is not a conventional FHA loan correct? Your interest rate will be higher for what's considered a commercial loan as well. If you were to move into the property and perform what many people call a house hack (living in the property while renting out another unit). Than you could qualify for an FHA loan and receive a lower interest rate.
I hope all of this was helpful and good luck.
@Nick Ferrari Don't get too caught up on the interest rate. I would research closing costs as well. A lender can give you a lower interest rate, however, their closing costs can be higher.
The loan is 44k! At that amount the interest rate is of low importance.
How are you cashflowing $500 after PITI and reserves? What's the rent on a property worth 44k?
@Huso Akaratovic If you have time to set up a new relationship, I would try langley federal credit union or old point national who are both local in Hampton Roads. I used to do a lot of work with Townebank but they have changed policies recently and are not as investor friendly. If you are cash flowing at your numbers though, I would stick with a known entity if it would mean you might lose the deal. I was in a pinch recently on a refi and had to go with a broker but I paid for it.
I have run into problems on the smaller price point deals below 100K as some banks don't even want to touch them these days. Message me if you want to talk more about the local 757 market.
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