Rental mortgage rates higher than owner-occupied mortgages

Investors who own residential properties pay higher mortgage rates and closing costs on their rental properties than they pay on their mortgages on owner-occupied homes.

The reason for the higher rates is that houses occupied by tenants are considered to be riskier for mortgage lenders.

The tenant has no pride in ownership and might secretly have farm animals living in the bedrooms. The tenant might not pay the rent, causing financial hardship for the landlord.

The Tenant could be like Michael Keaton in the psychological thriller “Pacific Heights”, where Keaton, the Tenant, terrorized his landlords, Matthew Modine and Melanie Griffith.

In the event of a pandemic, the government could create and enforce a moratorium on evictions.

Some investors are overstretching their finances and over-leveraging their properties or buying too many rental properties, and the minute a few tenants default or a recession hits, the house of cards crumbles.

Over the past 32 years in Vacaville 90% of all rental real estate mortgages I have taken out have been directed to financially savvy types of investors with high FICO scores and good cash reserves who own and manage real estate. residential to diversify their retirement portfolio.

The main theory behind the higher rate of increased risk probably dates back to the crash of 1929, when some wealthy people abandoned all of their rental homes but kept their family residences. Bankers believe that a borrower will let go of their highly leveraged real estate investments before they leave their home. This whole concept irritates a lot of my high net worth and high FICO clients.

Most successful former local landlords who have tons of equity in their rental properties see this as another way for mortgage lenders to make more money in fees and interest. In fairness to these skeptics, they’re right: bad apples ruin the barrel.

In my 40s, conscientious, conservative, organized landlords and running their rental units like a part-time business are significantly less risky than a buyer moving into their first home with little to no down payment.

Jim Porter, NMLS No. 276412, is the Branch Manager of Solano Mortgage, NMLS No. 1515497, a division of American Pacific Mortgage Corporation, NMLS No. 1850, and is licensed in California by the Department of Financial Protection and Innovation under the CRMLA / Equal Opportunities in Housing. Jim can be reached at 707-449-4777.

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