Investors - What Lender do you use?

39 Replies | Houston, Texas

Hi all,

I'm a realtor and investor in the Houston area and i currently have 1 rental home which i purchased around 2 years ago. With my ~800 credit score,I was able to secure a conventional investment property 30 year loan via a credit union @ 4.25% interest rate with 25% down and 0 points. 

I am ready to purchase my second rental (still searching for the home) but i have been looking at lenders for another investment property loan. With 20% down, the best i have come across is another credit union offering me 5% 30 year conventional 0 points. Its pretty difficult to find good cash flow with such high rate? 

At this point, i'm really considering transitioning from renting to just buying a primary residence home and renting rooms since i can get a 3.25% 30 year conv....

Anyone have another lender who they would recommend that can beat this 5% for investment property? Or any other good options to use as loan?

I’m looking for 3% on primary residence with zero down, no points, no pmi, no escrow. Is it impossible to find a lender even if it is zero risk for them, simply because they can find someone else who will pay more?

I got 0.9% with zero down on a new car, but of course car is different than house (although they are both depreciating liabilities).

Updated over 2 years ago

@daniel Alfaro What are the terms for 3.25% on 30-yr conventional - downpayment, points, pmi, escrow?

Hit up Graham Parham @ Highlands mortgage. He and his team are the best. And, my two cents... 5% is a killer rate. Pick a different market if your deals don’t work. Your interest rate won’t make a bad deal a win. If you’re making your buying decisions over a rate, you’re in the wrong game. 

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I guess you missed the 80's when we were happy getting anything under 15%. Hey if anyone has $200 million laying around I will be glad to pay you 5% interest.  😁

5% is a pretty decent rate.  There is nothing wrong with buying yourself a primary residence and renting out a room or two if that works for you.   You could always rent out a room for a year or two then rent the whole house out.  My friend does that.  He buys a new primary residence every 2 years.  Me personally it's too big of a hassle to rent out rooms in a place I am living in.  I would rather just rent out the whole house.

Or find a property that needs some work.  That could allow you to do cash out refinance

The other suggestion I have is maybe you want to increase your target area to find things more in line with the cash flow you want.  Sticking to one area will really limit what you can find. I had to go about an hour away to get properties with numbers that worked for me.  It seems kind of crazy, but you would be surprised what you can find.

@Tushar Prasad PM me ill give you the details. @Preston Tucker thanks ill reach out to them and see what they can offer @Ned Carey That's a fair point, i'm going to start looking further out of Houston @Brent Paul agreed, unfortunately with everything nice inside the loop being very expensive due to hot market, this option is not as attractive as in the past. 

Originally posted by @Tushar P. :

I’m looking for 3% on primary residence with zero down, no points, no pmi, no escrow. Is it impossible to find a lender even if it is zero risk for them, simply because they can find someone else who will pay more?

I got 0.9% with zero down on a new car, but of course car is different than house (although they are both depreciating liabilities).

An auto lender doesn't put their $ out for 30 years.  So they can charge a lower rate.   Also car loans are often subsidized by the manufacture.  Meaning their cost of debt is 2%, but they'll often loan at 1% and eat that difference as a type of price cut.

Originally posted by @Tushar P. :

@Cody L.

Aren’t Fannie and Freddie subsidizing the loans for the banks by buying the loans and turning them into securities?

Sure, you can get a loan that ends up being turned into a security. But someone still buys that SDO for an expected return that's reflect in the rate the loan is originated at.    However, that's not applicable to auto loans that are directly subsidized by the car companies where they actually PAY the financing company to offer a lower rate than market (the equivalent of paying points at close to buy down your mortgage rate) 

With 20% down and 5% rate and you can't find anything that cash flows in Houston????  Somethings wrong with you searching then.  Pretty much ANY house under 200K would cash flow at those numbers if you buy it half way decent.

@ Chris Hopper, what areas are you referring to? I'm targeting areas with solid schools at "1% rent to purchase" and something not old and unkept that will need AC/Roof+ who knows what else within 5 years...

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@Daniel A. , pretty much any area around Houston.  With 20% down and that rate, I don't see how it won't cash flow.  Again, if you're buying it even half way decent, with rehab included you should be more than 1% cash flow.  I refi all my rentals at 6-6-5% 30 yr fixed and they cash flow just fine.  

@Chris Hopper gotcha, thats my issue then. I have just been looking at turnkeys basically in HAR. Will need to start talking to wholesalers or something to find one that needs slight rehab. Because the ones on the MLS, first time homebuyers are eating up at a premium

@Chris Hopper heres an example of what i was talking about.

Nice home, good area, but once all is said and done, $1,300 rent (based on comps), first year cash flow is 2.1% cash on cash and 7.3% if you include principal 

@Daniel A. that would cash flow all day long at the terms you mentioned above with 25% down and 4.25%.  Although personally I wouldn't do it.  Dropping 40K into a property like this doesn't work for me.  I'd much rather pay a little higher rate and have much less cash in the deal.  I didn't run exact numbers on this particular one, but a quick glance says it should cashflow around $550 or so?  What did you come up with?  This is also on the higher end of properties that make good rentals.  This would rent for $1600 pretty easy.

@Chris Hopper the best rate i got was 20% down and 5%. The 4.25% and 25% down was for my 1st property but i havent been able to get that rate again. The issue with that one is that its a foreclosure and there could be various unknown issues and also take a long time to close. Im going to start looking at less costly properties. i agree would be possible to get 1600 but tough  based on comps 

@Daniel A. the 1600 was based on the comps and should be an easy target to get.  Even at 5% with 20% down, those will cash flow nicely.  Although not my strategy, if that works for you do it.  It sounds like you don't want to (or have the knowledge) do any rehab, so I can see where your searches may be limited.  But any house you buy around 100-130K in Houston should easily cashflow $400+/mo with 20% down @ 5%.

@Chris Hopper yeah but that's a foreclosure so not as clear cut. i haven't looked into it but could have a special warranty deed or some other issues. Im not against rehab but do not feel comfortable taking on major rehab projects when there are deals out there to be had with no or minimal rehab. Thank for the input