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After Ken and I made the decision to make an offer on an investment property, I took steps to get prequalified for a mortgage. Ken has the mortgage on our primary home in just his name (he bought the house before we got married). We purposely kept my name off the mortgage after we got married so that we both wouldn’t be encumbered by mortgage debt if we ever wanted to buy a second home or investment property. The idea being that I could qualify for buying future investment properties or a second home if I didn’t have primary residence mortgage debt already on my credit report.
It’s worth noting that this was just speculation on our part. We didn’t actually know if we’d have a harder time applying for investment property mortgages together with Ken already having ~$300,000 in mortgage debt (or likewise, if I was on our primary residence mortgage). But, we figured it certainly wouldn’t hurt matters.
Initial Efforts – One High Rate and Two Denials
Our realtor recommended a lender. However, after filling out their application, the lender got back to me with a mortgage rate of 5.5% PLUS a full point. And 25% downpayment. Yikes. I know that investment property mortgages are higher than normal mortgages. And I knew that there had been some recent interest rate hikes. But, that was still a lot higher than I was expecting. I have great credit, so I decided to shop around.
So, I applied online for an investment property pre-qualification through two local banks – one credit union, one normal. BOTH banks gave me the following response:
We’re sorry, but based on the information you’ve entered, we don’t have an online loan program that will meet your needs. This may be because the relationship of the loan amount you requested to the value of the property exceeds our guidelines. Other things, like how you intend to use the property or the type of property may affect program availability. Sometimes only minor adjustments are needed, so please contact us to discuss your situation in more detail. If you prefer to review the information you’ve entered, click here.
I was perplexed. So, I called them, and both had the same response to my application. They do not offer investment property mortgages on duplexes unless I planned to reside in one of the units. And for future note, they don’t offer investment property mortgages on any homes with 3 or more units. Good to know!
A Much Better Offer
Then I got in touch with the lawyer we had met with a few months earlier to discuss the legal aspects of our future real estate investments. He recommended a lender that he knew that dealt specifically with investment properties, including multi-unit properties. So, I contacted that lender and applied for prequalification. This time, I was offered a 4.875% interest rate with NO points (but still 25% downpayment). Boom. MUCH BETTER.
When it was time to put in the formal offer, the realtor asked me about the lender. I told her that the lender she recommended didn’t work out. She seemed annoyed, and encouraged me to tell the realtor-recommended lender that I had found a better rate elsewhere. That she really liked working with that lender. And I was like, umm, okay.
Back & Forth with the Realtor-Recommended Lender
So, I called that original lender and told her I had gotten a better rate elsewhere. After a few hours, she called me back and said she was able to match that rate of 4.875 instead of the original 5.5%. I was like, great! And then she sent me the paperwork. It was 4.875%, but with a full point! And I told her that the other lender had had no points. And she said that she wasn’t able to get the 4.875% rate without adding a point.
So, I decided to go back with the cheaper lender. And then I talked to the realtor again. And the realtor was like, “Let ME talk to my recommended lender.”
At this point I was getting kind of annoyed. I’m like, I got a great mortgage rate offer with zero negotiation. Why not just go with that one? But our realtor “really liked” her recommended lender. At that point I told her that I was leaving the negotiations in her hands. That I didn’t want to spend more of my own time negotiating when I already had a better deal elsewhere.
Lo and behold, within a day, I had a 4.875% rate with no points from the realtor-recommended lender. Are there kickbacks on these things? Why was my realtor so set on using a particular lender? And how could the lender magically lower the rate by such a significant amount? But, now that I had just as good of a rate, I was willing to oblige the realtor’s recommendation.
Lessons Learned
So, what were the lessons from getting prequalified for an investment property mortgage?
- Shopping around for a mortgage is ALWAYS a good idea.
- Although not a huge deal, I’d double check with a bank before applying that they even offer the type of mortgage you are seeking. It’s not a huge deal, as multiple mortgage inquiries within a short amount of time only count as one hard pull on your credit, but it was still time that I didn’t have to spend on the application.
- Investment property mortgages required a 25% downpayment. I was only anticipating a 20% downpayment.
- Be more assertive with my realtor. I’m not sure why I was so willing to acquiesce to her “strong recommendation” to use a particular lender.
How was your experience applying for an investment property mortgage?
