4. BRRRR Strategy – The Four Factors That Affect Your Loan Rate
4. BRRRR Strategy – THE FOUR FACTORS THAT AFFECT YOUR LOAN RATE
This is the next installment in a multi-post series on financing your rental investment properties using the BRRRR strategy.
Often I receive requests for loan rates and terms. I get it. Every day we are constantly bombarded with emails, calls, texts, social media posts offering all types of investment advice, strategies, and loans. Time is short. Just give me the rate and terms and if I am interested, I will get back to you. Well, it is not that easy.
While there are basic guidelines to structure, finance and underwrite a loan, there are many variables to it.
So, to break it down for you, let’s focus on the four factors that will determine your loan rate.
1. Credit FICO score
Anything above 740 will get you the best rates. The lower the score, the higher the interest rate. Most lenders set their minimum to 650 (although we do have some lenders accepting a 620-minimum score). Below this, you will need to pay cash for the property or find a private lender willing to fund the deal.
2. Experience level
Even if your FICO is 790 and you have plenty of money in the bank, if you are new or just getting started, that puts you in the new investor category. Expect a higher rate.
3. The loan to value or LTV
Most lenders offer a maximum of 75% LTV for your refinance. If you do not need that much cash out of closing, consider a lower LTV. My most recent BRRRR refi with a client had his LTV at 60% with a 4.75% rate. He only needed to recoup his investment and did not need to cash out.
4. Buy down down the rate
This could reduce your rate by 1/8 to 1/4 point.
Now you can see why determining your loan rate is very fluid before we lock it in. Once you understand how the process works and establish a relationship with a lender, it is simply wash, rinse and repeat.
Looking for funding? REI Trader, LLC has purchase, refi and fix and flip loan programs for your SFR, rental and multifamily portfolios. For rates and terms, please email jonathan@reitrader.com
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