Are These Interest Rates Especially High?

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Are These Interest Rates Especially High?

Mike S.
Member since 2018 · 44 posts · 36 votes

I’m grateful for any insights folks can provide on current interest rates for an investment property. Do the following rates (issued in the past few days) seem especially high:

For a single family rental home:

+200,000 purchase price, 25% down, 30yr 5.25% apr 5.379

+175,000 purchase price, 25% down 30 yr fixed 5.25% apr 5.3895

+150,000 purchase price, 25% down 30yr fixed 5.375% apr 5.55

+125,000 purchase price, 25% down 30 yr fixed 5.375% apr 5.57

For a multi-family (of two to four units):

+250,000 purchase price, 25% down 30 yr fixed 5.5% apr 5.918

+225,000 purchase price, 25% down 30 yr fixed 5.5% apr 5.603

+200,000 purchase price, 30yr fixed 5.5% rate apr 5.918

We were recently pre-approved and when I ultimately drilled down into the current rates our mortgage advisor could offer, this is what we were quoted.

I realize it's only possibly to speak in generalities without having a complete financial picture, but here's a snapshot: my wife and I are applying together and each have credit scores of approximately 800, very low DTI, and strong income/employment histories for the price range of properties we're considering. This loan would be for our first investment property, which we aim to purchase in Spokane, Washington (99205, 99224, 99201, 99203, etc.).

I realize that we should expect higher interest rates compared to someone who is purchasing their primary residence (perhaps 1% for an SFR and up to 1.2% for a multi-family), but I was definitely surprised by these rates—should I be? If so, what would you expect a reasonable rate to be for SFRs in the above price ranges?

Lastly, should I expect most lenders to require 25% down rather than 20% down for an investment property?

Thanks so much for your insights and assistance.

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Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
7y
Originally posted by @Mike S.:

I’m grateful for any insights folks can provide on current interest rates for an investment property. Do the following rates (issued in the past few days) seem especially high:

For a single family rental home:

+200,000 purchase price, 25% down, 30yr 5.25% apr 5.379

+175,000 purchase price, 25% down 30 yr fixed 5.25% apr 5.3895

+150,000 purchase price, 25% down 30yr fixed 5.375% apr 5.55

+125,000 purchase price, 25% down 30 yr fixed 5.375% apr 5.57

For a multi-family (of two to four units):

+250,000 purchase price, 25% down 30 yr fixed 5.5% apr 5.918

+225,000 purchase price, 25% down 30 yr fixed 5.5% apr 5.603

+200,000 purchase price, 30yr fixed 5.5% rate apr 5.918

We were recently pre-approved and when I ultimately drilled down into the current rates our mortgage advisor could offer, this is what we were quoted.

I realize it's only possibly to speak in generalities without having a complete financial picture, but here's a snapshot: my wife and I are applying together and each have credit scores of approximately 800, very low DTI, and strong income/employment histories for the price range of properties we're considering. This loan would be for our first investment property, which we aim to purchase in Spokane, Washington (99205, 99224, 99201, 99203, etc.).

I realize that we should expect higher interest rates compared to someone who is purchasing their primary residence (perhaps 1% for an SFR and up to 1.2% for a multi-family), but I was definitely surprised by these rates—should I be? If so, what would you expect a reasonable rate to be for SFRs in the above price ranges?

Lastly, should I expect most lenders to require 25% down rather than 20% down for an investment property?

Thanks so much for your insights and assistance.

 If you care about the rate, yes you will put 25% down.

It's not possible to comment on the exact pricing available to you without far more information than provided, but one thing to keep in mind right now is that with most lenders, their discount point buydowns have significantly more bang for your buck than normal.

If you google, a million websites will tell you that 1 point buys the rate down 0.25%. Right now, it's closer to 0.5%. Break even points are less than 4 years, typically, at the moment. I've seen a few scenarios where the break even is less than 2 years. It looks like rates have fallen to the point that lenders are no longer interested in competing on rate, rather they are competing on discount point buydowns. 

Right now lenders are trying to hedge against you refinancing before they've recouped their origination costs by collecting several months of interest payments. That's what you are seeing. The stick of a higher "no points" interest rate, the carrot of phenomenal buydowns. 

Since many consumers are going along with this and buying the rate down, you are continuing to see the average rates people get decrease even though the "no points" rates have slowed their rate of change substantially. 

Is it worth going into that level of detail with an audience of 1 person who isn't even in contract and in a position to lock or make a decision? Up to the LO. 

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  • Shea SpinelliPro Member
    Rental Property Investor · Tyler, TX · Member since 2016 · 198 posts · 89 votes
    7y

    @Mike S. We just closed on a duplex at 4.35%. It’s a 5 year adjustable/27.5 yr am w/a 10 year balloon. It’s a CU like others have said and they use the FHLB out of Chicago to set their rates.

    1Reply
  • Anthony Wick
    Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
    7y

    @Mike S.

    Closed a duplex in August in my LLC.

    20% down, 25 year amort, 4.6% interest, 10 year balloon.

    1Reply
  • Jessica Beard
    Rental Property Investor · Long Beach, CA · Member since 2018 · 48 posts · 11 votes
    7y

    What lenders are you guys using? I am closing on a 30 year conventional mortgage at 5.5% through Chase. This is with excellent credit and 25% down. This is my first investment property and I made the mistake of not shopping around first.

    3Reply
  • Mike S.
    OP
    Member since 2018 · 44 posts · 36 votes
    7y

    @Shea Spinelli Thanks so much for sharing these details. Your post is definitely a great reminder about the value of seeing what local credit unions can offer--which I’ll be sure to do. Congrats on the new duplex!

    @Anthony Wick I greatly appreciate the details. As a follow-up question or two--if you don't mind--how long have you been purchasing properties under this specific LLC? And have you worked with the same lender for all of the associated loans? Although it obviously depends on the details and balloon payment, at a glance that seems like a great rate to attain through an LLC in today's market. Lastly, congrats on the new addition to your portfolio!

    1Reply
  • Mike S.
    OP
    Member since 2018 · 44 posts · 36 votes
    7y

    @Jessica Beard Congrats on the new property! It sounds like the rate you received through Chase is very similar to the quotes I received from Cornerstone. @Michael DeHaan piqued my interest in Better Mortgage given the rate he was able to attain, the customer service, and lower closing costs (although I recognize that these details can often be specific to a particular applicant/purchase). I'm definitely going to add Better to the list of lenders I'll be contacting. It sounds like a lot of others have had good luck with their local credit unions as well.

    For those generously sharing their insights in future posts, it would be great if you could state the lender you used if you feel comfortable doing so. Thanks!

    1Reply
  • Ryan Proffit
    Saint Joseph, MO · Member since 2018 · 401 posts · 244 votes
    7y

    @Steven Wilson headed to my credit union!!

    3Reply
  • Ryan Proffit
    Saint Joseph, MO · Member since 2018 · 401 posts · 244 votes
    7y

    @Shea Spinelli what percent down?

    1Reply
  • Ryan Proffit
    Saint Joseph, MO · Member since 2018 · 401 posts · 244 votes
    7y

    @Anthony Wick local bank?

    1Reply
  • Shea SpinelliPro Member
    Rental Property Investor · Tyler, TX · Member since 2016 · 198 posts · 89 votes
    7y

    @Ryan Proffit 20% down in our Series LLC

    2Reply
  • Ryan Proffit
    Saint Joseph, MO · Member since 2018 · 401 posts · 244 votes
    7y

    @Shea Spinelli thanks brother.

    1Reply
  • Shea SpinelliPro Member
    Rental Property Investor · Tyler, TX · Member since 2016 · 198 posts · 89 votes
    7y

    @Ryan Proffit For sure, you’re welcome.

    0Reply
  • Zac Boelkow
    Port Richey, FL · Member since 2016 · 129 posts · 48 votes
    7y

    @Mike S. I just went through you’re exact scenario on multi family property. Last month rates were lower. This month best I can find is 5.175% I think a law was passed that changed the dp from 20% to 25%... on a side note I just negotiated and got a signed contract with owner financing at 3% on a 30 yr note with a 10 yr balloon. The better question for you and most of us is “how can I?” We’re in high markets, interest rates are up (however still relatively low). Competition is fierce. Properties are selling in days... How can I get a better rate? How can I get a better price? Deals are still out there. How can I get these deals at the prices/rates that make sense....

    1Reply
  • Account Closed
    Lender · Denver · Member since 2017 · 4 posts · 4 votes
    7y

    Mike - happy to help. 

    .20-.25% lower. The rates I'm working with also vary based on DSCR, credit score and pre-payment penalty.

    1Reply
  • Chad McLeod
    Member since 2019 · 58 posts · 60 votes
    7y

    I bought 2 NOO SFRs recently -- 1 at 4.75 and the other at 4.875. Both were 30 years and 25% down with FICO just under 800. First one I bought a point and the 2nd I bought 1.5 points. Also, the 2nd loan was only 52K so there may have been an add for the loan amount being small. I just barely missed it with the first one.

    Long story short, I think the rates you mentioned are a bit on the high end.  I would definitely get more quotes if I were you.

    1Reply
  • Rob SinghPro Member
    Financial Advisor · Lake Zurich, IL · Member since 2019 · 19 posts · 3 votes
    7y

    @Anthony Wick what Bank did you use? Most require 5+ units to lend to LLC. I'm in Chicago, not sure if that matters

    1Reply
  • Ricky Davis
    Investor · Searcy, AR · Member since 2018 · 52 posts · 39 votes
    7y

    I do 20 year mortgages on a 5 year balloon.

    I pay 15% down. Usually I get this back after I have rehabbed it. rates have currently been anywhere from 6% to 6.5% ask if they will give you a few points if they automatically draft your payment on a certain date. my local bank will do that. I use a home town bank. They do not have to push my loan up to someone 7 states away. I would always talk with a local bank before you go to one of the big banks. There is something about good service that these banks can do that online lenders or big banks cant and wont do.      

    1Reply
  • Nathan Hall
    Rental Property Investor · Martinsburg, WV · Member since 2017 · 111 posts · 81 votes
    7y

    @Mike S. I'd just like to say that this has been a very informative thread for me, so thank you. We're on our third multipropery/multifamily deal this year so this ties in directly with she discussions I've had with lenders recently.

    I don't know that I have any advice for you specifically that adds to the other suggestions I've seen here, but I do appreciate you wording your concerns so well. It bred good dialogue and definitely gave me some food for thought. Your rates didn't seem crazy to me but I've seen some convincing replies here that show me how to get more with less, maybe. On the other hand, the deals that I've taken to local banks have allowed me inroads and relationships that I might not otherwise have, and definitely need in my environment, if I want to keep down this path.

    1Reply
  • Jenna Lee
    Rental Property Investor · Seattle, WA · Member since 2018 · 66 posts · 21 votes
    7y

    @Steven Wilson can you share with us the name of the credit union?

    0Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    @Mike S.

    I closed a refinance yesterday for investment condo...

    4.125% 30 year fixed.....no points, $599 in underwriting fees, plus title related fees...

    I did it LoanDepot

    1Reply
  • Nick Loukas
    Rental Property Investor · Bethlehem, PA · Member since 2017 · 59 posts · 22 votes
    7y

    @Mike S. Seems a bit high. My credit is mid 700’s have student loan 100k debt and mortgage on primary of 175k and was getting rates of 4.25-4.6 a month ago with 25k down but buying 2 points at 800/point. Hope this helps. I live in PA.

    1Reply
  • Nick Loukas
    Rental Property Investor · Bethlehem, PA · Member since 2017 · 59 posts · 22 votes
    7y

    @Chris Mason haha I'm actually interested in what you said about buying down your rate with purchasing points. My lender charges 600-800 per point. My question is if I'm strictly buy and hold with no BRRRR or refinancing forecasted do I buy the points or keep the money in my pocket at the closing table ?

    0Reply
  • Account Closed
    Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
    7y
    Originally posted by @Mike S.:

    I’m grateful for any insights folks can provide on current interest rates for an investment property. Do the following rates (issued in the past few days) seem especially high:

    For a single family rental home:

    +200,000 purchase price, 25% down, 30yr 5.25% apr 5.379

    +175,000 purchase price, 25% down 30 yr fixed 5.25% apr 5.3895

    +150,000 purchase price, 25% down 30yr fixed 5.375% apr 5.55

    +125,000 purchase price, 25% down 30 yr fixed 5.375% apr 5.57

    For a multi-family (of two to four units):

    +250,000 purchase price, 25% down 30 yr fixed 5.5% apr 5.918

    +225,000 purchase price, 25% down 30 yr fixed 5.5% apr 5.603

    +200,000 purchase price, 30yr fixed 5.5% rate apr 5.918

    We were recently pre-approved and when I ultimately drilled down into the current rates our mortgage advisor could offer, this is what we were quoted.

    I realize it's only possibly to speak in generalities without having a complete financial picture, but here's a snapshot: my wife and I are applying together and each have credit scores of approximately 800, very low DTI, and strong income/employment histories for the price range of properties we're considering. This loan would be for our first investment property, which we aim to purchase in Spokane, Washington (99205, 99224, 99201, 99203, etc.).

    I realize that we should expect higher interest rates compared to someone who is purchasing their primary residence (perhaps 1% for an SFR and up to 1.2% for a multi-family), but I was definitely surprised by these rates—should I be? If so, what would you expect a reasonable rate to be for SFRs in the above price ranges?

    Lastly, should I expect most lenders to require 25% down rather than 20% down for an investment property?

    Thanks so much for your insights and assistance.

     Seriously? When I started, the good rates were 8% and the bad were 13%. If you can't make a profit on 8% money, rethink your strategy or you will simply die in the market when rates go back to normal.

    1Reply
  • Victor Yum
    Member since 2019 · 14 posts · 5 votes
    7y

    Closed on an investment townhome in North Texas (Frisco) couple weeks ago, 25% down loan amount $250,000 ish.  Buy down to 30 years 3.875% Without any buydown, 0% origination fee, I think it is 4.5%.

    0Reply
  • Mike S.
    OP
    Member since 2018 · 44 posts · 36 votes
    7y

    @Zac Boelkow Thanks for the insights. And congrats on what sounds like an excellent owner-financed deal. I completely agree that “How can I?” is a crucial question and perspective for unearthing opportunities . . . and often opportunities that others have initially overlooked. A commitment to asking this question and diving deep into the answers can emerge as its own competitive advantage. If you’re continuing to explore financing on that multi-family property, please keep me posted—I’d love to hear what you’re ultimately able to attain.

    @Caitlin Waldschmidt Thanks again for all of your assistance. It’s great to have a rough estimate for the difference in interest rates with 20% down vs. 25% down.

    @Chad McLeodThanks for the rate information and detailed context--it’s quite helpful. Were these two loans with the same lender? And thanks for the encouragement to procure more quotes--I’ll definitely be doing that.

    @Ricky Davis It’s great to hear you’ve been able to establish such a strong and fruitful relationship with your local bank. Indeed, I’d prefer to work with a local lender and establish a long-term relationship--assuming their rates and fees are ultimately competitive. That’s a great tip on trying to secure a few points from your local bank by committing to having your payments automatically drafted. Lastly, thanks for sharing the details on your rate and terms. I’m continually looking at things through the lens of a thirty-year fixed rate with approximately twenty percent down. Consequently, it’s great to see the diverse range of ways others are structuring their deals to meet their specific objectives.

    @Nathan Hall Thank you. It’s great to hear this conversation has been helpful. I’m continually amazed by and grateful for the knowledge and wisdom people share so generously on Bigger Pockets. Congrats on the multifamily/multi-property opportunities you’ve created this year and the inroads you’ve made with local lenders. I share your sentiments--I ultimately hope to build a long-term relationship with a lender in my market. I just hope to be able to do this while securing competitive rates. I hope all is well in West Virginia.

    @Diane G.Congrats on closing the refinance--and thanks for sharing your rate and fees. Were you pleased with your overall experience with LoanDepot?

    @Account Closed I appreciate your sentiments and perspective. When looking at rates in the context of the past few decades, it likely seems ridiculous to hear someone question a 5% or 6% rate as being too high. And I definitely agree, if an SFR deal is contingent on a difference in interest rates of 0.5%, there's a good chance the margin of error one is operating is too slim to begin with. That being said, there's no reason not to seek out competitive rates in today's market while also keeping an eye toward the crucial variables of customer service, fees, the value of the relationship with a specific lender, etc. Thanks for reminding us of the long view--and the fact that today's low rates may very well be fleeting.

    0Reply
  • Anthony Wick
    Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
    7y

    @Rob Singh  @Ryan Proffit  @Mike S.

    Local bank. My LLC is relatively new, as I took on two partners about a year ago. We've purchased two duplexes under the LLC in last 9 months. The three partners did fill out paperwork for a personal guarantee. I always recommend shopping around, but then stick with a great partner bank once you find it. The second duplex couldn't have been easier to close on. No realtors involved either. I wrote up the Purchase Agreement. Banks attorney's did the close and title work.

    Also, we don't escrow taxes or insurance in these now, so the closing costs are lower as well. No prepaids to be had. My 20% down payment was actually less as I received credit from seller for property taxes. And the last two duplexes were 7 and 10 year balloons, which is fine by me. LLC is on a 5 year plan right now. None of us are young guys.

    3Reply
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