Investment rates for conventional loans

[Justin Owens]

Short question: What is the normal spread between primary residence mortgage rates and investment rates? Are there more fees with investment properties vs primary residences?

Background: we purchased 2 BRRRR properties (Mesa, Arizona and San Tan Valley, AZ) via a HELOC in February and are trying to refinance. Of course the HELOC rate is much lower than the 5.5% we are being quoted by the lender doing the refi. I see primary residence loans in the high 3% and low 4% range with no fees. I am paying about $3k per property in fees and closing costs (not prepaids). I am just trying to make sure this is what it costs for investment properties. One loan would be about $65k and the other would be about $90k. I get smaller loans cost more than larger amounts but this much?

I shopped around long and hard to find someone who could refi before the 6 month seasoning period was done. He is doing it under the delayed financing exception and we should be able to get back 100% of purchase price plus closing costs. (Rehab on one property was minor $5k and sweat equity, nothing on the other). I am wondering should I float the funds on the HELOC through the 6 month or even 12 before I try and maybe it will cost less or just bite the bullet now to lock in permanent financing.

Is there a site where we can find investment property rates like bankrate.com where we can find rates for refi's for conventional loans on investment properties?

Any advice is appreciated here.

[Chris Mason]

Originally posted by @Justin Owens:

Is there a site where we can find investment property rates like bankrate.com where we can find rates for refi's for conventional loans on investment properties?

Good for you for finding someone familiar with FNMA DFE.

No one advertises those, because having the company name next to those interest rates would scare off vanilla FTHB owner occupants. Everyone that advertises rates online, advertises best-case scenarios that probably less than 5% or 10% of people actually qualify for, if you pick any old internet lender and read through the assumptions they make. And then if you want to be a little more honest and advertise a normal real life scenario, everyone will think your rates are high and they will be scared off, which is why many firms conclude that it's "damned if you do, damned if you don't" and simply skip advertising rates online. 

Here's a link to Fannie Mae's loan level pricing adjustments. The figures you see there are discount points, not interest rates. If you tally those up, you can see how many discount points it would take to get that same best-case scenario owner occupant SFR interest rate that everyone advertises.

In your case, I note the following hits directly from the top:

• Cash out hit.
• Investment property hit.
• Probably a FICO/LTV hit, unless you're leaving 40% equity in it.

Things applicable to your scenario that are probably from your lender:

• Helping with closing costs.
• Small loan amount (a problem we don't have too often here in the Bay Area :P ). 

You almost certainly have the option, if the equity is there, to take those "hits" in the form of discount points rolled into your loan balance, rather than a higher interest rate. If it's a property you are going to hold for a long time, lower payment and improved cashflow probably trumps mortgage balance, so this isn't crazy at all. 

Recall that when doing FNMA DFE BRRRR, your max loan amount (assuming the appraisal comes in high enough) is capped by original purchase price PLUS closing costs. Discount points are a closing cost.