Better lenders in Rochester NY?

Question

Hello BP, my partners and I are currently under contract to buy our first investment property (duplex) in Rochester NY. We’re putting 20-25% down on this $130k property. Our current lender came back and told us our rate will start at 4.75% for 30 fixed, we’ll be charged 2 pts and total closing costs less prepay will be around 10k. To me, the rate seem quite high given the recent 50 bps cut and possibly another 50 bps cut on Mar 18th. The closing costs seem higher than usual as well. Does anyone with experience in Rochester agree with these costs? Would be great to hear your opinions and possibly introduce me to better lenders. Thanks in advance!

Stephanie P. · Answer

@Jay Wu

Sounds like it's not necessarily Rochester that's the issue  but the structure of the deal.

Let's analyze it for a moment.

• You've got a partnership, so I'm assuming you're buying in an LLC.  
• You're buying a duplex with 20-25% down, so it's not Fannie Mae meaning it's portfolio money.  
• I'm also assuming no tax returns so it's a no income verification loan.  
• You live in Fremont and you're buying in Rochester so it's a long distance investment property purchase=risky

Roll those together and you have a good rate and point combination at 4.75% and 2 points.  Closing costs on portfolio loans are high; no getting around it.  Some of the larger wholesale lenders in that space will charge you $1995 just to underwrite the loan and another $600 to close it not to mention the environmental survey as well as the cost of the appraisal BEFORE you even get to the measly 2 points the broker's going to make.  Some charge entity review fees around $750.  This is a tiny portfolio loan in a relatively tertiary market with an out of state (by a long shot) investor.

Regarding the decrease in rates by the fed, the 50 bps doesn't necessarily translate into a reduction in mortgage interest rates by half a point. Here's a great article that illustrates what I'm writing about.

http://www.mortgagenewsdaily.com/consumer_rates/937579.aspx

If the cash flow numbers work, take the 4.75% and close.

Best of luck

Stephanie

Adam McQuiston · Answer

I am looking to expand my lender resources. Since this pandemic lenders are getting tighter belts understandably. Want to keep my options open since I also sponsor mentees on deals.

Stephanie P. · Answer

I think you're right if it's a Fannie/Freddie loan.  My mistake.  You can buy a duplex with 25% down.  Refinances are capped at 70%.

If they have your taxes and you're going Fannie/Freddie, I think you are correct; your closing costs are too high.  Those costs are more in line with a portfolio type loan.

Jay Wu · Answer

@Conrad Jackson Thanks Conrad, we're doing traditional 30 years fixed and is Fannie/Freddie loan. I will send a request to connect with you.

@Adam McQuiston 10k is the closing costs only.

@Stephanie P. Thanks for analyzing my situation, we are exploring between buying in LLC or on our personal names depends on rates. May I know why can't buy duplex with Fannie/Freddie loan on 25% down? We did submit our individual tax returns for the past 3 years in order for the lender to pre-approve the loan. Though I do agree living far away can contribute to the risk premium, but closing costs still feel ridiculously high to me..

Account Closed Thanks Russell, I've sent request to connect with you.

Account Closed · Answer

@Jay Wu are you going to be an owner occupant, or is this strictly an investment property?

Account Closed · Answer

@Jay Wu I am local to Rochester and invest here as well. If you would like a reference to a great local lender I can send you their contact info

Martin Grizzanti · Answer

I live and invest in Rochester--let me know if you have questions on local contractors, pm, insurance etc

Conrad Jackson · Answer

@Jay Wu

I live CA and have investments in Roc. They are all Fannie Freddie loans and I’ve never put more than 25%. I think if you buy SF it is only 15%... I have different partners with each one so know from my own experience it can be done and cheaper than what you’ve stated. As for LLC-  it is my understanding that you can transfer afterwards but to start it will be in your names. Unless, like I have done for a few, is pay all cash and purchased under my LLC and then switched when I rate term refinanced. Hope that helps.

Adam McQuiston · Answer

The rate is is good because it is an investment property not an owner occupy. The points may be for the better rate. Im assuming its a prepayment penalty at 10K or if that's the closing cost it does sound high as Conrad stated. That sounds kinda ridiculous as it is on a 130,000 property.

Conrad Jackson · Answer

Are you doing loan as a commercial loan or traditional Fannie/Freddie 30yr fixed? Seems very high —typically under $1000 for lender fees and third party fees may equal up to 7k but that includes attorney, taxes, appraisal etc... I have a few lenders I use. You can PM me if you want their contact. Good luck.

Better lenders in Rochester NY?

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