Do mortgage rates differ for investors vs. homeowners?

liz_hMay 11, 2006

All other factors being the same, do home mortgage interest rates differ for homeowners than for investors?

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chelone

I don't think I understand the question, Liz.

What is the difference in definition between "investors" and "homeowners"? Aren't wannabe "homeowners" "investors"? or am I looking at this through eyes that don't view the lending world the way others do...

(yikes!)

    Bookmark   May 11, 2006 at 6:37PM
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quiltglo

Yes. A mortgage on your principal residence is less than on investment property. Higher risk of failure with investment property. Just like for a second home or vacation property. People will default on those before they will default on the home where they live.

What that rate will be depends upon where you get the mortgage.

Gloria

    Bookmark   May 11, 2006 at 8:13PM
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chelone

Gloria,

LOL, I wasn't thinking in terms of holding more than one mortgage! I was thinking in terms of "investors" that comprise the pool of liquid assets that homeowners DRAW on when they take OUT a mortgage. Funny how we can read a question and see it from two distinctly different perspectives, huh?

    Bookmark   May 11, 2006 at 8:19PM
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liz_h

chelone - Sorry about that - my question wasn't worded very clearly! A lot of people think that owning some rental property is a good investment. I agree, but am trying to decide just how good an investment it would be for me.

Gloria - Thanks, I was afraid that was the case.

Liz

    Bookmark   May 11, 2006 at 10:12PM
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housenewbie

Some banks only lend for primary residences.

Insurance rates for rentals are also higher than for an owner-occupied residence.

    Bookmark   May 12, 2006 at 1:21PM
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devorah

I just took a class at the local community college on getting started in the home rental business. Basically we were advised to lie about everything, which made me very uncomfortable. We were told to tell the lender we had plans to move into the new house and rent the old house and to have a friend sign a fake lease agreement on the old house to make our bottom line look good. I can't operate that way.

    Bookmark   May 12, 2006 at 6:27PM
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kellyeng

devorah - what kind of credentials did your instructor have?

    Bookmark   May 14, 2006 at 1:00PM
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devorah

His credentials were 25 successful years in the rental business. It was a community interest class so he didn't need to have any kind of degree to be teaching it. What amazed me is that he was so candid about his business dealings. He also told us he had illegal mother-in-law apartments that he rented out - illegal in the sense of not having been inspected or being zoning violations. He kept saying "there are no mortgage cops" "There are no zoning cops" (or at least too few to get around to him). The class was packed with people. I don't know what any of the others thought.

    Bookmark   May 14, 2006 at 5:08PM
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liz_h

Hmmn, I don't think I want his kind of success! You don't have to break the rules to make money with rental property. I guess it's a matter of how big a profit you're comfortable with.

This reminds me of an exchange between a friend of mine and her teenage son. Both my friend and her ex own some rental property. My friend feels she has some responsibilities as a landlord besides collecting the rent. This is not the case with her ex. She knew her kids had seen the difference, but they had never discussed it. Anyway, as she and her son were repainting between tenants, son said "Dad wouldn't paint this wall". My friend replied, "Yeah, but I'm not a slumlord!"

    Bookmark   May 14, 2006 at 7:44PM
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costumecarol

You can get caught if you bend too many rules.

I remember reading (I think it was on these forums) that a potential home seller was furious with the request that he remove a wall in his home, and take out the second kitchen on the other side. Suggestion came from the lending institution chosen by the buyers. It sounded for all the world like an apartment that was not allowed per zoning regulations.

Of course, I suppose one would have to calculate how much he made on that illegal apartment over the years, as opposed to how much it cost to tear down that wall.

    Bookmark   May 19, 2006 at 8:05AM
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quiltglo

Good luck with your decision, liz. We never made any profit by the time you took out expenses, cash used when the property sat empty, etc.

DH had the properties when we married and it took several years to convince him the the emotional outgo was not worth what little bit on income could be made. We also had a real bust economy here for awhile and everything tanked. Now that interest rates are still low, people can hardly rent their places. I know we would be hurting big time if we still had the rentals.

Gloria

    Bookmark   May 19, 2006 at 7:38PM
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joyfulguy

Gloria,

Here I've been wondering whether you'd rescued a quilt from an area hit by a nuclear bomb!?

o j

    Bookmark   May 19, 2006 at 9:07PM
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mortgagehelplive

Loans for investment properties tend to have higher interest rates than loans on a primary residence. The difference in rate will depend on your FICO score, income documentation, and LTV(loan to value- the percent that you are borrowing compared to the purchase price).
Keep in mind that hard money loans for investment properties will have higher interest rates than a loan for an investment property funded by a bank. I hope this helps.

Here is a link that might be useful: mortgagehelplive.com

    Bookmark   May 19, 2006 at 11:19PM
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joyfulguy

Hi mortgage help live,

Your message seems to be something of a promotional piece for a business.

That isn't kosher here - for any but the owners of the site, who recently bought it (paying $20.00 a head, more or less, for access to our eyes and ears). And brain.

Interesting concept that you offer.

Where does one find these "hard money loans" to which you refer?

What are some of the parameters that relate to them?

Advantage/disadvantage over obtaining one from a bank, if available?

Thank you for the info.

ole joyful

    Bookmark   May 20, 2006 at 8:05PM
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liz_h

Gloria,

Thanks for passing on your experience. I'm still not sure about this.

Liz

    Bookmark   May 21, 2006 at 10:56AM
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mortgagehelplive

For ohjoyful
You can find hard money lenders through a web search...just type in "hard money".
Hard money loans are short term loans. They usually have a 6 or 12 month term. The rates tend to be high...usually between 14 and 18 percent. Some will also charge high origination fees. I've seen as high as 8%. So the high rate and fees may be seen as a disadvantage.
Advantages of hard money...they close fast and you can have access to funds for repairs. Hard money loans are usually sought out for flipping projects.
A hard money loan would make sense if you plan on buying, rehabbing and selling within 6 months. A bank loan would make more sense if you are planning on keeping a property for rental income.
And just so you know...mortgages for investments(non-owner occupied) properties ALWAYS have a higher interest rate than a primary residence. The bank considers a non-owners residecen to be a higher risk loan so they charge a higher rate.

    Bookmark   May 21, 2006 at 6:56PM
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missjulied

"He kept saying "there are no mortgage cops" "There are no zoning cops" (or at least too few to get around to him)."

There certainly are zoning cops. My neighbors and I busted another neighbor for renting out a house with a MIL as a duplex.

    Bookmark   May 22, 2006 at 1:26PM
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vikki083

Sorry but there are Mortgage Cops. If a lender thinks that you are committing FRAUD by saying you will be living in the home. They will send someone out to check in six months or so. They will check to see who the light bill and water bills are being sent to. there are several different ways to check. As for making a profit on rental properties, it can be done in an enviroment where property values are going up. If you can get your renter to pay the month to month expenses on the property, In three to five years you should be able to refinance it and pull some of that money out. Nobody ever said (or should have said) that real estate investing was easy.

    Bookmark   May 29, 2006 at 12:05PM
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devorah

I didn't say I believed him - I was just repeating what he had to say

He also mentioned again and again the importance of having a good relationship with the neighbors so they wouldn't report him.

This guy had a teflon personality. He seemed like the nicest guy in the world. He was jovial, laid back, a guy you could imagine being friends with. But then I realized there wasn't any change in his demeanor ever. I think he could smile and roll through anything. It was a little spooky

    Bookmark   May 29, 2006 at 6:39PM
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xine

Investment loans cost more, but not alot more, than conventional loans.

We did it by living in the home for a year while we built our new house. We then had the financing in place for the rental property already (at lower rates) and only needed to get fire, windstorm, and liability insurance as landlords. We got our new home loan through the same mortgage company (Countrywide) and we just had to list the old mortgage as a debt, but include the projected monthly rent as income to cover it. No problem.

Home prices have gone up significantly where I am, but rental rates haven't kept pace (though they are still high). I can't afford another rental property because I couldn't cover the costs (unless I specifically wanted to take a loss on my taxes) each year. We look at like someone is paying off a mortgage for us... we don't take any additional money out of the house at all. The house appreciated approx. 150% in two years, so we ARE making money... except it's on paper right now...

    Bookmark   June 8, 2006 at 11:09AM
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