Conventional Loan Interest Rates and Fees

[Matthew Kirkwold]

Hello I've been talking to three banks and I have been inquiring about potential interest rates I could get if I were to get prequalified with them for a conventional loan on my first investment property. I don't have an exact property identified but am wanting to find a competitive interest rate so I can know what I should be using to analyze my deals (So far I have been using 4.25% to be conservative). I'm wanting to put down 20% and the interest rates have been between 3.25% and 4.25% considering my credit score is consistently between 740-760.

I asked why there is a difference between banks and the rates I'm being told. One bank (the one saying 4.25%) said it is also confusing since all conventional loans are funded by fannie mae / freddie mac etc. and the interest rates shouldn't vary much at all. A different bank (the one saying 3.25%-3.75%) said that every bank can charge whatever interest rate they want even on conventional, federally funded loans and that the interest rate is getting bumped up on me because that allows them to reduce the fees. The third didn't say much about the differences and said I should be able to get ~3.625%. All three of the banks are local to my area, two are fairly small and one is larger but still local, not like a Wells Fargo or anything.

I haven't heard anything about this before now and am asking for insight into how the fees and interest rates are correlated and if I'm better off going for a higher interest rate and lower fees or vice versa. I am also confused on if I should be getting pre-qualified with multiple banks because I know they can't give me accurate numbers without a loan application and running my credit report. I have not heard clear advice on podcasts saying if it is good or bad to get pre-qualified by multiple banks. 

My questions are:

1) Does a higher interest rate mean my closing costs will be lower and a lower interest rate mean my closing costs will be higher? 

2) Should an investor get multiple pre-qualifications or just one to avoid wasting anyone's time?

What is everyone's advice and take on these concepts?

Thanks and I appreciate you all!

Best,

Matt

[Chris Mason]

Originally posted by @Matthew Kirkwold:

Hello I've been talking to three banks and I have been inquiring about potential interest rates I could get if I were to get prequalified with them for a conventional loan on my first investment property. I don't have an exact property identified but am wanting to find a competitive interest rate so I can know what I should be using to analyze my deals (So far I have been using 4.25% to be conservative). I'm wanting to put down 20% and the interest rates have been between 3.25% and 4.25% considering my credit score is consistently between 740-760.

I asked why there is a difference between banks and the rates I'm being told. One bank (the one saying 4.25%) said it is also confusing since all conventional loans are funded by fannie mae / freddie mac etc. and the interest rates shouldn't vary much at all. A different bank (the one saying 3.25%-3.75%) said that every bank can charge whatever interest rate they want even on conventional, federally funded loans and that the interest rate is getting bumped up on me because that allows them to reduce the fees. The third didn't say much about the differences and said I should be able to get ~3.625%. All three of the banks are local to my area, two are fairly small and one is larger but still local, not like a Wells Fargo or anything.

I haven't heard anything about this before now and am asking for insight into how the fees and interest rates are correlated and if I'm better off going for a higher interest rate and lower fees or vice versa. I am also confused on if I should be getting pre-qualified with multiple banks because I know they can't give me accurate numbers without a loan application and running my credit report. I have not heard clear advice on podcasts saying if it is good or bad to get pre-qualified by multiple banks. 

My questions are:

1) Does a higher interest rate mean my closing costs will be lower and a lower interest rate mean my closing costs will be higher? 

2) Should an investor get multiple pre-qualifications or just one to avoid wasting anyone's time?

What is everyone's advice and take on these concepts?

Thanks and I appreciate you all!

Best,

Matt

This may very well be your first or 2nd time getting a mortgage, but you've been to the dentist. Not particularly fun, you go there for the outcome, not the process, though sometimes the process can be more or less painful, sometimes substantially so. And the quality of work can vary. Yes?

 If I need some dental work done and I'm new to town, I could call around and get 10 quotes. One says $250, one says $1200, two don't get back to me, and 6 are all in the range of $600 to $700. OK, so I'm ruling out four of those dentists, the one way below market is probably sketchy, and whatever it is that attempts to justify $1200, I probably don't need it (if I did need that expensive special sauce, I'd already know, and btw this will be the dentist that says "all dentists charge the same," wouldn't it?), and the 2 that didn't get back to me don't want my business, that's totally fine, no need to tell me twice. Of the 6 left, I'm going to check reviews, take some time to figure out who I'm most comfortable with based on the interactions so far, maybe even think about the professionalism of the person that answered the phone. 

But I'm probably not going to worry about $625 v $675 v $635.