Which of these lenders would you choose? Would you pay points?

Question

So, after starting an application with a lender on these forums back in December, who took all the forms, checked my credit, and then suddenly stopped replying to emails, calls, and texts, I now have offers for a refi from two different lenders.

One is local to my property area, and is offering 4% with (I think) zero points. (I'm waiting for the Estimate to verify this.) This lender does respond, but slowly. Small bank in a small town.

The other is from an online lender that is offering 4% with $854 in points on a $195k loan. Or I can choose to pay more points for a lower rate: for example, $3639 for a rate of 3.625. Or I could pay $50 for a rate of 4.375. This lender responds quickly and is ready to go forward.

Which lender would you choose, and if the second, would you pay points? If I understand correctly, investors can't deduct points in the year that they are paid, but over the life of the loan.

Thanks.

Rene Owczarski · Answer

@Steve S. Either one, you're still getting a low rate. When I bought my first rental, my rate was 6% and I was thrilled to get it that low. But if it were me, I would go small town bank. Since I'm guessing that this isn't going to be your last property, if you're posting in BP. So you have a better chance of developing a relationship with these small town lenders, so that you can borrower more from them, or buy their REO's. Especially on REO's, I have a friend in Marshalltown, and he's developed such good relationships with these small banks(and paid them a ton of interest), that they'll sell him their REO's to stabilize/clean-up, and also give him 100% funding on the buy side, and this helps the bank turn bad paper into good paper. Verse going with the online lender, where once it's closed, they're more or less done with you, since the paper is getting sold to their wholesale funder or one of the agencies.

Taylor Dye · Answer

From the perspective of a loan officer, assuming you're comfortable that both offers are competitive, I would always recommend going with the one who is fast to respond, even if the fees/rate are a bit higher. If the local bank is slow at the beginning they'll probably be slow throughout the entire transaction. And time is an enemy in lending.

Steve S. · Answer

Thanks again, @Rene Owczarski! I especially like your thoughts about the advantages of working with the local bank.

I sent the competing estimates to each lender, asking if they will match/beat. (I covered up their names.) We'll see what happens.

Steve S. · Answer

Thanks, @Taylor Dye - that's also very helpful.

Rene Owczarski · Answer

@Steve S. You're welcome. And that's a great idea, to have the lenders fight for your business. Since now they'll know that you're shopping around for the best deal, since they are all selling the same product....money.

Rene Owczarski · Answer

@Steve S. Ha, of course that would happen with the local bank. But if you have other properties that you want to purchase, I would give that local bank a call, and lay out the situation for them. They might be able to do some kind of cross collateralized loan for you, and then you would have one loan that covers the purchase and refi of all the properties. And you also might be able to use some of your equity in the refi property, as your skin-in-the-game on the purchase side of the transaction. So no cash out of pocket on the buy side.

Steve S. · Answer

Or does it make sense to first do the purchase and then the refi?

Steve S. · Answer

Thanks, @Rene Owczarski. Meantime, I got the loan estimate from the local bank...and now it has more points than the online lender. :(

A new twist: a couple of new properties just came on the market that I would like to buy. Will one lender or another be better to handle simultaneous applications?

Which of these lenders would you choose? Would you pay points?

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