Over at the ImprovementCenter, I’ve published 2 new articles about why you may not be getting the lowest mortgage rate and what to consider when taking out a 203k loan. Check them out!
Taking on a rehab? Think about a 203k loan
One application: The 203k loan allows you to apply for general financing, in addition to the funds needed for the rehab, in one loan. The alternative is to go through the typical mortgage closing process and then secure funds elsewhere for your renovations through other financing. This loan lets you wrap it all up in one application process.
Low interest rate: This is a government-backed loan so banks are covered in the event of a loan default. This also means you can expect a lower than average rate than you would see in the commercial lending market or even hard money, which is traditionally very expensive but used by many investors.
Save your money: This one is obvious. By utilizing a 203k loan, you are using someone else’s money to pay for the rehab while saving your own. In the unfortunate event that you’re unable to sell the home after the rehab, you won’t risk having your own money tied up in the project.
Not getting the lowest mortgage rate? 4 reasons why
1. Bait and switch
This is typically the domain of lenders who use somewhat questionable tactics to get customers on the phone. They figure once they have you, and you are giving them your basic information (income, credit score, intended purchase, area, etc.), they can reel you right in. The problem is that you may not fit their ideal credit profile. When they find out, they will often throw you into a rate that is vastly different than the terms advertised.
2. Credit score
The rates you see advertised are always for those with the highest tier credit. Think 700+ with the cream of the crop starting at 750. Therefore, if your scores hover around, for example, 650 or just under 700, then you can expect the rate to be higher depending on where you fall on the credit score spectrum.
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