Interest rates on investment properties are traditionally much higher than rates on primary homes, often 0.75-1.0%+ higher or charge 1.5-2 points, because they are riskier loans and thus require a higher return from the creditors. However, I’ve recently found that some banks are pricing investment loans much lower than I’m used to seeing, relative to loans on primary homes.
As we head into the second half of the year, when demand begins to taper off in the real estate market, the lower interest rates on investment loans might create some attractive buying opportunities for some investors.
I spoke with Trey Reed with Cross Country Mortgage about their investment loans and why CCM has shifted its investment products. If you’d like to speak with Trey directly, you can reach him at [email protected] or 703.297.9382.
Lower Rates on Investment Loans, Including Condos
Usually interest rates on investment properties are 0.75-1.0% higher than the going rate on mortgages for primary homes (or charge 1.5-2 points on the loan), but lately CCM has been pricing investment loans just 0.125-0.25% higher than their rates on primary loans (with no points). Last week an investment property with 25-30% down was priced at 6.875-6.99% with no points for a 30y loan compared to 6.75-6.875% for a comparable loan on a primary home.
Traditionally rates on condo loans have also been higher than other property types because banks consider condos to be a riskier asset. With at least 25% down, CCM is not charging any risk premiums for condos, which usually costs borrowers another 0.25%.
Why Have Investment Loans Gotten Cheaper?
Trey can’t speak for all banks, but he said that Cross Country Mortgage has improved their rate pricing and underwriting guidelines favorably for investors because they’ve found that the loans perform well in the long run and are seeing a lot of demand for them in the secondary market.
Investment properties have higher down payments (25-30%) compared to most primary home loans and the rental income provides additional risk protection compared to primary or second homes. The risk protection of rental income is the main reason why you won’t find similar rate discounts on second homes.
Portfolio Lending Offers More Flexibility
These discounted investment loans are what’s called “portfolio loans” which means CCM is setting their own underwriting guidelines rather than using Fannie Mae guidelines, which price investment loans much higher. One of the differences in these portfolio guidelines is that they’re applying future rental income to the debt to income calculations to qualify borrowers, making it easier to qualify for an investment loan.
If you have questions about Cross Country Mortgage’s investment loans or are interested in getting quote on a property you’re considering, you can reach Trey Reed at [email protected].
If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at [email protected].
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