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