5.375% Interest for Conventional loan on Investment Property??

[Tom Cotter]

Hello All,

I'm in the process in buying a second home for the purpose of renting out. I plan on going with a conventional loan at 20% down, the loan officer I'm working with has me pre-qualified and has the interest rate at 5.375% (not locked in). I was told by him the only way to get the interest rate down would be to put down a bigger down payment.

Is 5.375% normal interest rate for an investment property? 

Would there be any other way to bring it down, besides a bigger down payment? 

I'm located in Virginia and my credit score averaged at 790.

Any help would be much appreciated!

Thanks!

Tom

[Albert Bui]

Originally posted by @Tom Cotter:

Hello All,

I'm in the process in buying a second home for the purpose of renting out. I plan on going with a conventional loan at 20% down, the loan officer I'm working with has me pre-qualified and has the interest rate at 5.375% (not locked in). I was told by him the only way to get the interest rate down would be to put down a bigger down payment.

Is 5.375% normal interest rate for an investment property? 

Would there be any other way to bring it down, besides a bigger down payment? 

I'm located in Virginia and my credit score averaged at 790.

Any help would be much appreciated!

Thanks!

Tom

 It could be because you just said some contradictory stuff above " a second home for the purpose of renting out."

In the mortgage world a second home is similar to a primary home except that it is only used by the borrower for part of the year, like a used for vacation like a home in big bear mountain or aspen to going skiing.

A home to rent out is a non owner occupied property or investment property and as such its priced about .250 - .50% higher than a primary or second home. There is also a premium of an additional .375 to .50% in rate for 20% down versus 25% down so consider that in your calculations for your investment returns. This means that a 4.125% primary home with 20% down is around 5.125% for an investment property with 20% down on average.

Second and primary homes typically are priced the same in rate but second homes have higher down payment requirements (AKA your Loan to value or LTV goes up or your down payment has to increase).

When the lender says 90% LTV that means you're bringing in 10% down or the difference.

In this case its 80% LTV with 20 down payment.

Your rate is about right since you're doing 20% down and investment property. If you increase your down payment I bet your rate would go to 5.00 or 5.125%, just a guess.

Let us know how it goes, hope that helps.