Interest rate for investment properties

[Eric Lee]

Hi All,

I was wondering what the typical spread is between interest rates for a conventional 30 yr loan for a primary residence vs. a rental property?  My lender quoted me at 5.375% for rental property loan with 20% down (150-200k purchase price).  Looks like current rates for a regular loan are in the high 3's or low 4's.  Is this difference to be expected from most lenders for a rental property?  

Thanks!

[Chris Mason]

Originally posted by @Eric Lee:

Hi All,

I was wondering what the typical spread is between interest rates for a conventional 30 yr loan for a primary residence vs. a rental property?  My lender quoted me at 5.375% for rental property loan with 20% down (150-200k purchase price).  Looks like current rates for a regular loan are in the high 3's or low 4's.  Is this difference to be expected from most lenders for a rental property?  

Thanks!

 This is from fanniemae.com:

Those are what it would take, in discount points, to get the same rate you see advertised everywhere. That 3.375% and 4.125% you see there are why lenders that offer 20% or 15% down for investment properties can very quickly get a reputation for having "high rates," causing many lenders to not even offer anything less than 25% down, basically just to guard their reputation even though this is straight from the top (Fannie Mae) and not lender-specific. If you wish to put 20% down but do not wish to pay 3.375 points on top of that, you can take the bump in the form of a rate hike.

There are similar adjustments for FICO scores, 2-4 unit properties, and various other things. Basically every little thing separating you from an owner occupant first time homebuyer putting 25% down with a 740 FICO score is another "loan level pricing adjustment."

Even before all those adjustments, rates in general spiked on the most recent election day (you could say rates are "Trumped" up, omg I crack myself up) and have not come back down to pre-election levels. When you see investors talk about their 3.75% investment property note, it was Q4 2011 or Q1 2012, the folks at 4.25% often went into contract Jan 2015, etc. And of course folks bragging about their killer interest rate while listening to "Hipster Cocktail Party" on Pandora might not mention that they spent 2 or 3 discount points buying it down as a fashion choice, not necessarily a rational economic one.

You can't day-trade when you go into contract, nor are you in a position to alter the presidential election results, but you can (and should) day-trade when you refinance. There will be another Q1 2012, and another January of 2015, etc.