Home Loan Rates on Arizona Investment Property

Rental Property Mortgage Rates – Phoenix Arizona

Phoenix area investors (and investors in any marketplace) are subject to higher mortgage interest rates when they purchase investment property (aka – rental or non-owner occupied).   Why?   As your Phoenix Arizona Mortgage Lender, I want to walk you through what investors/lenders (OZ behind the curtain) are thinking.

When it comes to home loan rates RISK is the name of the game.   Risk drives rate adjustments. Yes, Arizona Mortgage Rate direction (FHA, VA, Conventional etc…) is primarily based on market forces. However, the relativity between Phoenix mortgage interest rates for different scenarios on any given day is all about risk.  What I mean is that the difference between a mortgage interest rate quote for a primary residence and an investment property on a particular day is due to the inherent risk the lender takes on relative to each scenario.

Difference Between Primary & Investment Home Loan Rates

The best way to understand this is to pretend that you are a mortgage bank and you yourself are lending money to a home-buyer.  If you have two buyers to consider lending hundreds of thousands of mortgage dollars to, one of your biggest “concerns” would  be getting your money back at some point and protecting your investment.   As an Arizona mortgage lender, you aren’t in the business of lending to obtain possession of properties after they foreclose and building your real estate owned portfolio.  You, the lender are in the business of selling money.  As such you have to find ways to “protect” yourself against business losses which in the mortgage world come from homes you have financed foreclosing.

The question you would need to ask yourself is who will walk away from a home and their mortgage obligation first?  A homeowner that lives in a home where they have family dinners, celebrate holidays and measure the height of their growing children on laundry room wall OR a homeowner that has no emotional tie or that does not use the home as shelter for their family.  The answer is that an Arizona property owner that owns a primary residence AND an investment property would typically choose to “let go” of an investment property long before they would default on a property they and their family call HOME.

How Do Mortgage Lenders Adjust for Investment Properties?

As a Phoenix area mortgage lender, you would need to find a way to adapt to and adjust for the added risk associated with lending on a rental property.   The two easiest way to accomplish this are:

1. Require a buyer to put down a larger down payment on an investment purchase – this way the chances of the mortgage balance exceeding what the house is worth in the event of a foreclosure is limited.  After all, if the lender forecloses on the house they will turn around and sell it to try and recoup as much of their money as possible.  If the borrower puts 20% down when they buy the home the lender is in a better position to be able to sell the home and avoid taking a loss on the outstanding mortgage.  Putting 20% down also requires that the Phoenix Real Estate investor has a little more “skin in the game.”

2. Charge a higher mortgage interest rate – charging a higher mortgage interest rate allows a mortgage lender to collect additional revenue to help offset the added risk they take on by financing a rental property.  The added revenue that is collected on all the rental properties a mortgage company lends on helps to offset the additional losses mortgage company’s endure on rental property foreclosures.

There you have it!  Higher mortgage interest rates on Arizona rental property are there for a reason and that reason is NOT to line the mortgage company’s pocket.  In fact, higher mortgage interest rates on investment property allow Phoenix area and national mortgage lenders to stay fluid and continue lending mortgage money on rental property purchases.  If you are looking to qualify for a rental property please call or email me.

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By Jeremy House



  1. Crystal Carroll says:

    Are you able to assist my husband and I with an investor mortgage. We are looking at a townhouse in Tempe for $200,000 we will be putting 20% down (40,000) we both have credit scores over 800. We will be renting this property out.


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