sharing my response to Tony’s private e-mail - Posted by Rob Ricker
Posted by Rob Ricker on May 11, 2006 at 23:47:26:
for benefit of other newbies or people that might have the same questions and will search the archive …
First off, your broker seems like he may be $1,000 or so high on fees. If I were you I’d ask him if he can cut his fees a little bit. You shouldn’t have to pay a lender discount fee to get 8.125, however don’t ask for him to cut it too much because what he gave you is very close to the best you can get the way your purchase is structured.
In order to truly help you, I need you to understand the problem with this loan …
By getting an 80/20 investment loan you are forcing your broker to use “Subprime” financing when your credit deserves better. Subprime means it doesn’t fit conventional loan guidelines, and anything over 90% LTV on an investment property is subprime. 8.125% is a very reasonable rate for what your requesting actually.
If you put 10% down, your broker can use conventional loan sources and get you around a 7.00% interest rate with at least $1,000 less in fees. Ideally 10% down is the way to go when acquiring financing for rental property. Other than subject to’s, wraps, etc. I put 10%+ down on all my deals, but I realize that it’s not always possible for a newbie to do that. If you don’t have the down payment, you will unfortunately pay with a higher monthly payment and fees. You must calculate this into the deals if you want to finance this way. The question for you is are you happy with the cash flow on an 80/20 loan? Do your numbers work? If so, ask for $1,000 back and move ahead. If not, it’s time to find a source for a 10% down payment (HELOC, gift from family, 401K, etc.)
p.s. if you’re not happy with your broker, I can find someone to do your loan right. I only broker in Tennessee, but I have many friends in the business nationwide.
People First Mortgage Corporation