Normally, how higher is the interest rate of the loans for investment properties? Thank you.

Asked by Wing, Sunnyvale, CA Tue Oct 9, 2007

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Jim Walker, Agent, Carmichael, CA
Wed Oct 10, 2007
The simplest answer is the one the other Walkers gave you: 1 " point"
( that point is a one time prepaid interest charge of 1% of the loan amount paid at the close of the purchase)

1 point would be the added on charge for a purchase of a single family house (SFR) in good condition (not a fixer) with 25% or more down.

If the buyer chooses a higher note rate in lieu of paying the one time point the note rate will be about 1/2% higher than an owner occupied home.

As a “rule of thumb” you can avoid the higher note rates add-ons that I estimate for you in the following table by paying "points" For example if you pay two to two and a half points you may be able to avoid a 1% increase in the note rate.

This is for example purpose only to answer the Trulia consumer (Jason) question and not a solicitation for a loan application:

Non-owner occupied typical add on rates - this is not an offer to lend.

SFR with 25% or more down + add ½ % to rate.
SFR with 20% down + add 3/4% to the rate
Duplex with 25% down add 7/8% to the rate
Duplex with 20% down add 1.25% to the rate.
Triplex or Fourplex, 30% down,
add 1.375% to the rate
Triplex or Fourplex 20% down add 2% to the rate.

This chart is a gross simplification. The typical mortgage lender rate sheet is 7 to 8 pages long, with dozens of programs per lender. There are hundreds of lenders, All with their own pricing matrices and nuances.

When it comes to investment lending the higher the perceived risk there is the higher the points and / or rates will be.

Some of the keys to obtaining investment rates closer to owner occupied rates are:

1. Full documentation of borrower and property income.
2. Substantial down payment from verified source.
3. Excellent Credit.

Some factors that will worsen your rate considerably:

Failure to properly document property income and expense.
Failure to document borrower personal income.
Failure to provide adequate down payment and verification of down payment funds.
Poor property condition.
Number of rental units greater than 5 but less than 30.

Multi-million dollar investment properties are totally different. Interest Rates on class “A’ office buildings, thriving retail centers and large residential complexes (100+ units) can be very low.
1 vote
Perry Hender…, Agent, Austin, TX
Thu Oct 11, 2007
80% LTV's and great score 7% - 9%, full doc get's better.

18% for hard money.... Think of it this way, it's better than 50% with a partner.
0 votes
Infinity Rea…, , Saratoga, CA
Thu Oct 11, 2007
When also financing a non-owner occupied property you might be able to get away with only 10% down and bit of a lower interest rate if you are able to buy the property as a second home. Banks usually consider second homes that are a bit away from your primary residence and like if it is in a resort like community.
0 votes
Sylvia Barry,…, Agent, Marin, CA
Wed Oct 10, 2007
Thanks Jim. There is a reason why you get all the invitations to answer :-) .

0 votes
ian cockburn, Agent, New Orleans, LA
Wed Oct 10, 2007
It depends...on a construction rebuild it can be as low as 7%. On permanent financing between 8 and 12% depending on how much money you pay down.
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Suzanne Walk…, Agent, Oklahoma City, OK
Tue Oct 9, 2007
At least 1 point but probably more under the current loan market conditions.

The more you put down the lower the interest rate and the lower the difference between owner occupied interest rates.
0 votes
Holly Grigai…, Agent, Cottonwood, AZ
Tue Oct 9, 2007
There are so many factors that come into play here. Your credit score, Your down payment, the type of property you are financing, are you using a mortgage broker or a mortgage banker, what company you get your financing from and finally, the atitude of the mortgage markets in general. Best thing to do, is have a chat with a few loan originators in your area, they can at least quote you current rates, based on a "perfect buyer" scenario....
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