Conventional Investment Mortgage rates seem high?

Question

Ive been shopping around for lenders for conventional fanny/freddy loans for investment properties.

I've talked to 3 national banks, and 3 local to my markets (currently memphis and OKC)

But the rates seem higher than what I was expecting given that the federal interest rate is practically 0. I'm getting quoted 4.5-5% for 30year fixed for traditional financing for SFR and .25% on average higher for small MF.

Before this, it seems like it was 3.5-4.25%

Is anyone else having this experience? Is it cause I am a new investor?

If not, does anyone have a lender they can recommend?

Russell Brazil · Answer

Youd typically look at 100 bps over owner occupied right now, and another 25-32.5 bps for multi over single, plus whatever adjustments for personal situations, so that interest rate range sounds like the right ballpark.

Chris Mason · Answer

COVID-19 Reality.

X.375% might be priced at 100.5, meaning you can use 0.5 to apply to a loan level pricing adjustment (FICO score, rental property hit, etc).

X.25% might be priced at 100.3.

X.125% might be priced at 100, meaning it's zero discount points assuming you have zero hits.

X.000% might be priced at 99.8, meaning it's 0.2 discount points.

So it's ballpark 0.2 to 0.3 per 0.125% to rate.

The base investment property 'hit' is 2.125 (source). We have to climb all the way up that rate sheet at like 0.2 to 0.3 per 0.125% to rate, to be able to offer a rate at zero points.

Pre-COVID, that climb wasn't 0.2 or 0.3. Typically, when there isn't a pandemic, it's around 0.5 as typical. So you have to climb TWICE as high up that interest rate ladder to find a rate at 102.125 than you used to.

Pre COVID example:

X.375% is priced at 101.1

X.25% is priced at 100.4

X.125% is priced at 100

X.000% is priced at 99.6

So, in this case, basically a LO could offer you X.375% at a cost of about 1 discount point. 1.1 of the 2.125% is absorbed into the rate. In the COVID world, that same X.375% would need about 1.6 points, which is just 102.125 minus 100.5. (You don't HAVE to climb the rate ladder, you can just pay a hefty amount in discount points like that person above was quoted)

The spread between owner occ and investment has gone up, even as the 'base' rate for owner occupants has gone down.

COVID is a "thin" stack v a "normal" or even "thick" stack. They also talk about ladders - the rungs are really small now, you climb up another rung in that interest rate ladder and have barely made any progress at chipping away at the 2.125 rental hit.

Stephanie Jones · Answer

There are multiple variables to consider when evaluating and comparing interest rates on rental properties. Our investors on average are continuing to see average rates around 4.25% with a few on the higher side of the 3% range. A few questions to ask when you are working with lenders on investment properties: Do you own investment property yourself? Do you count a portion of my rental income towards my DTI? Your personal credit score can also have an impact on these rates.

If you'd like to reach out in a private message, I'm happy to discuss further and potentially share lender information with you. Our company has several that we work with on a regular basis that can potentially simplify this process for you and give you the full picture.

Alex Hoang · Answer

@James Hamling and @Russell Brazil Thanks for the perspective and the the corgi memes! I am fairly new to the game and its nice to know in the long run this probably doesn't matter. Not sweating it too much but in my acquisition phase, I'm just trying to optimize and understand if I am talking to the right lenders.

@Chris Mason Hello to a fellow Oaklander, and thanks for the info that was really really helpful and explains alot of what I have been seeing

@Randy P. my rate is 4.875 without points, if you find something better please pm me your contact!

James Hamling · Answer

Be thankful, look back at 1980's rates, no clue how anything got done at double-digit rates.

Starting out, I wouldn't worry about a 1/4 or 1/2 a % difference, even a full %, that's stepping over dollars to chase pennies. Build a track record and portfolio, get qualified into commercial finance, that's when you can start leveraging for amazing rates.

Randy P. · Answer

That seems high to me, I'm also in the market for a similar loan and my rates are about 3.75% although it comes with almost 2.5 points.

David M. · Answer

@Alex Hoang

Not knowing your financial particulars. That sounds about right.  First the fed interest rate has “little” to do with mortgage rates.  The fed rate is just what they charge banks to temp loan money.  Mortgage rage rates for 30yr is around 3% for regular home buyers with excellent credit.  Add another point or so since you are financing an investment property.  Maybe your credit score is below 800, and you are in the ball park...

Conventional Investment Mortgage rates seem high?

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