How to find a good portfolio lender?

Question

Hello BP - I've been trying to find a good portfolio lender for rental property acquisitions. I've talked to many national portfolio lenders (included the recommended vendors on BP), they either have super high interest rate or crazy fees. Not trying to ask for recommendations of lenders, but merely...what is the way to go to find a good portfolio lender?

Thank you!

Chris Mason · Answer

I think your expectations are out of alignment.

Agency loans (non-portfolio) are characterized by back end profits from Fannie/Freddie, which (being that they are now gov't run) amounts to a big fat subsidy from the taxpayer. In COVID world, where both the Fed and Treasury are trying to pump up real estate with printed money (or, think of M1 Garand rifles in 1942, gov't is paying 20% over the normal rifle profit margin), those back-end profits are usually something like 5x to 10x the borrower paid fees on an Agency loan, meaning that if you pay $1500 in lender fees for a $500k loan at whatever rate, I'd expect the bank's back end net profit to be in the $10k to $15k range.

Portfolio loans have no back end profit or subsidy. So for it to make sense to lend you any money, at all, rather than lending it to someone seeking an Agency loan, that lost profit needs to come from you, some way or another. You are starting off with a $10k to $15k deficit by not checking the Agency boxes, that deficit needs to be zeroed out one way or another (fees, rate, terms, etc) before the portfolio lender can even consider making an actual profit (relative to the other opportunity, lending that $500k to a vanilla ho-hum W2 couple buying a primary residence, etc, where there's an automatic guaranteed freshly minted $10,000 bill [it's a two-party bill, btw,  Trump and Biden's faces both appear on this $10,000 bill together] guaranteed to come their way).

The sticker shock is sufficient that I try to avoid quoting non-Agency portfolio rates/fees/etc entirely, unless someone specifically requests it.

Nick Belsky · Answer

@Vince Liu

Hhmmm... my questions are what are you expectations and what kind of properties are you looking purchase?

Try the smaller lenders.  The national "big boys" don't like to mess with loans under $500k, $750k, or even $1MM sometimes.  They will quote you ridiculous terms to make you go away.

Commercial lenders - it is very common to see 2-4pts in origination costs.  There are always exceptions, but that is a fairly common range to expect.

Residential lenders - aren't normally too bad on costs, but their rates don't compete well in some cases with commercial.  If borrower paid structured loan, your origination fees will be high, but your rate will be lower and can be with no buydown.  If a lender paid structured loan, your origination fees will be low if not zero, but your rate will be high with no buydown.

All depends on what you are trying to do, how the loan officer structures it (and explains it to you), and what your expectations are versus reality of the market.

Cheers!

Willie James · Answer

The strongest driver's of portfolio loan rates are credit score experience and down payment. If you have a lot of experience and an excellent credit score (800+), I have seen rates as low as 3.5 for a 30 year rental loan.

Timothy Hero · Answer

Top tier credit (760+) is often around 4.5% for a 75% LTV cash-out right now with portfolio lenders. Of course things can factor in. Loans over $500k typically have the best rates.

Ross Francis · Answer

I find that word of mouth is the best indicator. Referrals Referrals Referrals.

Find someone you trust from your meetup or REIA and bend their ear.

Happy Hunting,

Ross Francis

Vince Liu · Answer

Thank you @Chris Mason for your insights. I guess if I am able to obtain an agency loan then I should get it every time. If I can't get an agency loan based on the situation (whether out of limit or does not meet the agency guidelines), I just have to take non-agency rates as my assumption when analyzing a deal and then proceed if it still makes sense?

Vince Liu · Answer

Thanks, @Stephanie P.. - wow great insight! Really appreciate it!

I guess what I'm trying to achieve is that when agency rate are in the 3's I'm trying to find the DSCR loans that are 4's rather than 5's. But I agree with you, as long as the number works we should take it because the rates will not always be at 3's.

I've also used a local credit union that offer very good rates, somewhere around prime + 0.25-0.5%, which was good but I found it difficult to find in the new market we're investing in. Do you have any suggestions on finding those? Should I rely on referrals? Or search online and making cold calls to local community banks / credit unions?

Stephanie P. · Answer

Hey Vince,

No one is quoting super high interest rates in this market.  Agency rates are in the 3's (some lower, but for the most part, they're in the 3's) and the DSCR loans are in the 4's and 5's with 2 or 3 points.  None of that is high.  We are in a historic low period for rates and it's a competitive market out there.  It's just a question of do the numbers at "market" rate and if they do, then take advantage of it.

Stephanie

Vince Liu · Answer

@Nick Belsky Thank you, Nick! Very informative!

Wale Lawal · Answer

Hi @Vince Liu, to find the best mortgage lender, you need to shop around. Consider different options like your bank , local credit unions, online lenders and more. Ask each of them about rates, loan terms, down payment requirements, property insurance, closing cost and fees of all kinds, and compare these details on every offer.Goodluck!

How to find a good portfolio lender?

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