Rental Property Loans- How to get best lending terms

[Jorge Rubio]

How can I make sure that a mortgage lender is giving me their best lending terms (lowest interest rates and closing costs)? Most banks only list their interest rates online for owner-occupied loans so it's more difficult to compare non-owner occupied loans online unless it is safe to assume that for non-owner occupied, it should be around 1% more? Also, I've heard that there is an inverse relationship between interest rates and closing costs, meaning that if a lender offers you a lower interest rate, then their closing costs will be higher than the lender that had higher interest rates. So it looks like lenders make up for it one way or the other. How true is this? In addition, what makes comparisons a bit more confusing is when lenders start mentioning discount points and how you can buy your way into a lower interest rate.

[Stephanie P.]

Originally posted by @Jorge Rubio:

How can I make sure that a mortgage lender is giving me their best lending terms (lowest interest rates and closing costs)? Most banks only list their interest rates online for owner-occupied loans so it's more difficult to compare non-owner occupied loans online unless it is safe to assume that for non-owner occupied, it should be around 1% more? Also, I've heard that there is an inverse relationship between interest rates and closing costs, meaning that if a lender offers you a lower interest rate, then their closing costs will be higher than the lender that had higher interest rates. So it looks like lenders make up for it one way or the other. How true is this? In addition, what makes comparisons a bit more confusing is when lenders start mentioning discount points and how you can buy your way into a lower interest rate.

You have a lot to unpack here.

Rates move all the time, but it's a competitive industry, so if a lender isn't giving you his/her best terms, you will probably go to someone that is. That being said, again, rates move all the time so you could be looking at a rate today and it could be lower tomorrow. In the conventional world, that's just the way it goes. Find someone you trust. Find someone that came to you from a referral. Go to REIA's and Meetups and talk to lenders. Get a feel for them and then ask around to see if anyone has worked with them in the past.

Rates for investor properties can be about 1% more, but the guidelines are different than owner occupied.  Again, find the lender you feel comfortable with, establish a relationship and agree to a rate/terms.

Rates are based on a scale.  Lender's compensation drives the scale.  It's already set and the rates on the scale reflect that.  That's why I really like when lenders lay out the rates and let the borrower choose the one they want.  The lender should  find out what the borrower wants to do; keep the property for a long time, buy it, fix it up and flip it, whatever.  Then give the borrower the rate range that shows them the available rates and costs.  If they want to buy it down to get the lowest rate and pay discount points, they can.  If they want yield spread (Yield spread is what a bank will pay to a lender for a higher interest rate.  If a borrower is short funds to close, they can increase the rate and get a lender credit to cover costs).  The idea is to leave the decision for the rate and terms to the borrower and then lock the rate.  Regardless whether the rate is high or low, the lender's compensation is already baked into the rate.

All of that is for conventional financing.  When you go the portfolio route, it's like the wild wild west.

Stephanie