Is it worth shopping for rates?

Question

Am I correct to understand that a bank or credit union will not negotiate their current set mortgage rates for a small time rental property purchaser?

I do believe some banks may have slightly different rates.  Do banks also have different closing costs (is that something which can be known prior to presenting the details of a property)?

Do people shop between 2-5 banks and try to find the best rate or are they all the same and thus, not worth the time to shop around?

Thanks

Joshua Fulenwider · Answer

@Marty Gold it is important to make the distinction between a traditional mortgage compared to a commercial real estate loan offered by a portfolio lender.  Traditional mortgages are what you typically think of with a 30 year fixed rate loan or similar product.  These are used to finance 1-4 unit properties only.  This type of product cannot be negotiated as they are designed for primary residence borrowers and there a ton of fair lending issues that are tied to them and banks can get in a lot of trouble for giving one persona break and not the next.

A commercial real estate loan on the other hand can be used for any type of real estate including 1-4 unit properties so long as they are primarily for investment of business purposes.  The underwriting and terms are a lot different compared to a traditional mortgage.  These types of loans can be easier to get and qualify for depending on your situation.  However the terms and fees are not as friendly as traditional mortgages.  However, the rates and terms of them do tend to vary a lot more from bank to bank and the terms can be negotiated depending on the quality of the credit (not just credit score) and how badly the bank wants the business.

What are you looking at financing and what's your experience?

Andrew Johnson · Answer

@Marty Gold The best thing is just to walk through with the bank your current situation.  Some banks will require 6 months reserves (in addition to the downpayment).  Things can get really tricky if you're self-employed or own a business.  Some will want to see __ months of bank statements to see if the money in there has been "seasoned".  You'll want to make sure things like your DTI income work for the bank.  Have you gone through all of that with any bank to make sure you're set?

Marty Gold · Answer

Thank you.  Other than shopping rates, do you suggest any other items I should shop for or price our at each bank - things that may not be fixed such as closing costs?

Thanks

Marty Gold · Answer

Thank you

Andrew Johnson · Answer

@Marty Gold I always shop for rates between banks.  When it comes to residential I've found pretty much everyone is within 1/8th - 1/4 point.  There's also nit-picky details around when you specifically lock that can also make a tiny difference.  None of this really amounts to much of a change in your monthly payment but I'd definitely try and find what seems to be the best rate + term combination for you.  You can ask about things like origination costs, appraisal costs, etc. but it's all pretty close across the board.  My basic guidance would be to ask a few banks.  It can't hurt.  Just know that the rate is only part of the equation, just because a rate is 1/8th of a point cheaper doesn't mean the loan itself is cheaper.

Tony Nguyen · Answer

@Marty Gold Most banks have similar rates, the only differences are the overlays they have. Hence why the rates will be slightly different but not significantly different. Closing costs are all the same across the board. (wouldn't make sense for different companies to have different closing costs because that technically can be perceived as shady and shady business is a no no). The only differences you'll find with banks are products, rates, and services. In this competitive market, everyone is competing on a level playing field and at the end of the day it'll come down to who you're most comfortable working with. Sure shopping happens but if you're given the right information up front, you'll realize the differences in rates only come out to be a small difference in payment depending on your situation and sometimes that difference isn't worth having to go through the entire pre-approval process again especially considering how time consuming and arduous the process is.

Typically with investment properties you'll be paying anywhere from 15-25% for the down payment (depending on bank/program) because you're not intending to occupy the property as a primary residence so the bank wants you to have more skin in the game (less risk for them). There are ways you can obtain an investment property via using the first-time homebuyer program however. Check out my answer to this persons post it'll shed light on how you can creatively get into your first investment property as a first-time homebuyer. Hope this helps.

https://www.biggerpockets.com/forums/49/topics/430704-2-4-unit-mortgage-loan

Marty Gold · Answer

@JoshFulenwider

This is my first investment property.  So 0 experience other than primary residence mortgage.  My partner and I have excellent credit scores. He has the same experience as me.

We want to get our toes wet on a small one-unit rental property in the 200k range, give or take a little.

Ty for your helpful post.  Please contribute more if my info alters your answer.

Is it worth shopping for rates?

Most Popular Reply