Builder Lender Vs Outside Lender which one to choose

[Pratap Singh]

Which one should i go b/w Builder Lender Vs Outside Lender to choose for New Construction SFH Investment property finance

Builder Lender:

Rate(Investment Property 30yr fx) - 4.625%

DownPayment - 20%

Total Closing Cost - 11816

Credit (Seller + Lender) - 7500(6500+1000)

Net Closing Cost - 4316 (11816-7500)

Outside Lender:

Rate(Investment Property 30yr fx) - 3.875%

DownPayment - 20%

Total Closing Cost - 12k(3-4%)

Credit - 0

Net Closing Cost - 12K

[Brenden Mitchum]

Hey @Pratap Singh

Are you more concerned with cash flow or CoC return? Looks like cash flow is higher on the second option but CoC might be higher on the first. My first thought was to just run the numbers and go with what fits your criteria best. However, I'm no math wiz, but I'm pretty sure almost 1% more on interest rate is going to cost you more than $7k over the lifetime of the loan. So, it will also depend how long you plan to hold for..

Also, might not hurt to ask the outside lender about credits. Just tell them what you're comparing them to..

This is assuming the data you presented above is the only data to be considered..

Hope this helps a bit! Please, feel free to reach out anytime if you have other questions or just want to chat!

[Howard Chen]

@Pratap Singh to add to what @Brenden Mitchum mentioned.

IMO, if you’re planning on keeping the property long term, I’d opt for option 2, since it’s lower interest rate(keep in mind, we’re also at historical low rates) and higher cashflow. 

If $7k makes all the difference in accelerating you to acquire another property in your market within the next 12 months or less, you’re still cash flowing at the higher interest rate, and the property is in a steady appreciating market, then I’d choose option 1