A Question Regarding Mortgage Rates for Investment Property

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One of my clients contacted me with this question:

"We’re in the early stages of thinking about buying a rental house.  If we were to buy a house for $260,000, how  much would we have to put down and what would the payments be like for a 30 year mortgage?"

Mortgage interest rates for investment properties are priced based on loan to value (how much money the investor is putting into the property) and the lowest mid-credit score of the borrower(s).   The price breaks are based at 70, 75 and 80% loan to value (LTV).   Based on a sales price of $260,000; here is what current rates would look like using a 30 year fixed rate mortgage and a mid-credit score of 720.

Non Owner Occupied with 20% Down — Loan amount of $208,000 with a rate of 6.875% (APR 7.074%).  Principal and Interest (P&I) = $1366.41 plus taxes and insurance (on all payments shown).

Non Owner Occupied with 25% Down — Loan amount of $195,000 with a rate of 6.750% (APR 6.952%). P&I = $1264.77.

Non Owner Occupied (NOO) with 30 % Down — Loan amount of $182,000 with a rate of  6.625% (APR 6.830%).  P&I = $1165.37.

Another option to consider may be a 30 Year Fixed Rate with the 10 Year Interest Only payments.  You must qualify at the fully amortized rate and after 10 years, assuming you still have retained the mortgage, the mortgage balance at that time will be amortized for 20 years.  If you never pay additional towards your principal during the first 10 years, your mortgage balance will be the same as when the mortgage was originated.  Here are rates based on the same scenario above with the interest only feature.

NOO with 20% Down — Loan amount of $208,000 with a rate of 7.250% (APR 7.439%). Interest only payment of $1248.00.

NOO with 25% Down — Loan amount of $195,000 with a rate of 7.000% (APR 7.188%).  Interest only payment of $1137.50.

NOO with 30% Down –Loan amount of $182,000 with a rate of 6.875% (APR 7.066%). Interest only payment of $1042.71.

I’ve written more about about financing investment properties here.

Do you have a mortgage question for me?  Send me an email, I’m happy to help and your question may help others.

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