Do lenders require a fee to get into a conventional loan for investment property?

Question

My wife and I are looking to get into an investment propoerty in Texas. We are using personal contacts to gain knowledge and get conected with professionals. We have been prequalified for a conventional mortgage at 20% down. They are saying there is another fee/cost to get the financing collected by the lender in addition to the down and closing costs of up to 4% of the borrowed amount.

Is this fee typical for a conventional loan for an investment property?

Lorien Rollins · Answer

Tagging my favorite LO @Wyatt Wolff

Caroline Gerardo · Answer

You will pay for an appraisal, non refundable. A few might charge $90 for the credit report. Nothing else can be charged upfront for conventional.

Conventional non owner there is no pricing below 2 point structure today. In addition you will pay title/settlement/impounds/insurance/taxes/ CPL/ appraisal/ recording/notary/ underwriting/processing/credit ... and maybe a few others depending on your financials.

If you are doing a small loan the fees look giant, this is standard for any loan.

Brayden Hrycko · Answer

Hey @Shawn Trousdale,

I would look into your dscr options as well. Rates aren't that far off for dscr compared to investment conventional and it may actually make more sense. I'd be happy to look at your scenario.

Dave Skow · Answer

@Shawn Trousdale- there are normal closing costs/ loan fees / prepaid  taxes - insurance and  interest  ...as you are already pre approved - ask your lender to  provide several loan cost worksheets for whatever  scenarios  you are considering   as these  worksheets should have all the  figures  itemized ....also keep in mind the  rates/ fees do change daily

Elliot Holmes · Answer

Well said. There are plenty of options for lending for investment properties. Not everyone qualifies for conventional and that's when they start considering non-QM loans.

Erik Estrada · Answer

Hey Shawn,

Depending on the rental income, credit, and your experience level, you might want to look at a DSCR loan. You may be able to get pricing without paying discount points as long as the rents cover the mortgage payment.

The rate will be in the high 8s, low 9s at 20% down. But if it's a multi-family, it might work.

Chris Mason · Answer

Currently the only way to avoid paying discount points on an investment property is to put 25% down if it's a single family home. The traditional method of absorbing pricing hits, of increasing the interest rate more, doesn't currently work because no one on Wall Street wants to buy Fannie Mae mortgage backed securities that have any 9%+ paper in it. So the adjustments, in particular the one for doing 20% down instead of 25% down, are applied to discount points instead of a higher rate.

Andrew Postell · Answer

@Shawn Trousdale sounds like you are referring to the "Points" in a loan.  It is customary to pay points in this current environment using a Fannie/Freddie loan.  I cannot see your credit score from here obviously but it might be good to get a second opinion from another lender in Texas.  Sometimes local lenders have a little better pricing.  Again, you might already HAVE the best pricing...but hard to tell from here.  Shopping might tell you something different but it is pretty normal to pay points currently.

Stacy Raskin · Answer

As far as what you have to pay upfront it's the appraisal and sometimes a credit report. For conventional investment property loans, since it's most likely a qualified mortgage (QM), if a 1-4 unit investment property, there's certain rules that the lender needs to follow:

-Points and fees are less than or equal to 3% of the loan amount (for loan amounts less than $100k higher percentage thresholds are allowed);-No risky features like negative amortization, interest-only, or balloon loans -Maximum loan term is less than or equal to 30 years.

Generally lender or mortgage broker compensation is lender paid or borrower paid for conventional loans. Borrower paid means a borrower is paying a fee at the end of the transaction- usually around 2%. Lender paid is that that the borrower is paying the fee but it's built into the rate so it takes the rate from let's say a 8.25% to a 8.75%. Some lenders don't disclose this fee structure if lender paid and conventional but all lenders are brokers are paid for their work- some just don't disclose it. It's a good idea to work with lenders or brokers who will discuss these details with you so you can make informed decisions.

Do lenders require a fee to get into a conventional loan for investment property?

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