Receiving The Best Loan For Your Investment Strategy
By JD Esajian on February 16, 2015
There are a lot of moving parts involved in every real estate purchase. If you are seeking lender financing, much has changed over the past couple of years. Not only has there been a reduction in programs, but many of the outlets for lending have also gone away. It can be very confusing trying to decide which lender has the best program for you. Sometimes the best program may not necessarily mean the best lender. Many other factors come into play: rate, length of time to close and familiarity have their parts as well. Choosing between a bank and broker is a big decision, but can be much easier if you know what to look for.
Before you start looking for a loan, you need to know how strong of an applicant you are. This will directly impact what kind of loans you are approved for. Regardless of the lender, they will all look for the same basic set of criteria to get started. Income, assets and down payment are the three critical areas that must be met before anything else is evaluated. You may think you have strong credit, but investment loans require scores over 700. Having income and rental income is not enough. You need to verify everything through tax returns or bank statements. Finally, any down payment must be from a personal account and be seasoned for at least 60 days. If you know where you stand in these areas, it will give you a much better idea on the strength of your application and what options you have.
If you are strong in all of these areas, you can start your search at a local bank. A local bank does not necessarily have to be a small mom and pop bank in your area. You can pop into a large bank and see what they have to offer. They usually have a set of portfolio programs that are aimed at borrowers with excellent credit. They offer competitive rates and fees that are in line with the current market. Many borrowers like the fact that they can visit the branch and talk to a live body that can give them an update. Bankers will typically have a faster turnaround time if a borrower has an existing account with the lender or has done business with them in the past.
If your credit is good but not great, a large bank may not have the programs you are looking for. Banks are great at what they do, but if there is any variance from the guidelines it can be difficult to get your loan through. At this point, you can look at mortgage banks or mortgage brokers. These are fairly similar in nature, but mortgage banks are your larger lenders like a Quicken loan or other outlets that have the ability to write their own loans and still broker the deal out to lenders. They are much more flexible in their guidelines because they have several lenders to choose from. If the underwriting is in-house, you can still have the confidence that you are working with someone with a local flavor.
A mortgage broker is someone who has access to several lenders and works as a middle man to find you the best deal. A mortgage broker often has some of the same programs as a big bank, but may not have the speed or rates that a large bank has. What a broker does best is work with numerous banks, each with their own set of guidelines, to give you as many options as possible. If you own more than ten properties or need to be able to sell a flip before 90 days, a broker may have an outlet for you. Because they are a broker, they can find banks that have niche programs. The downside is that, while you can always walk into the brokers office, they are at the mercy of an underwriter who is often times thousands of miles away.
Many brokerages unfairly took a bad rap when the market collapsed. Accordingly, a lot of them were forced to close when programs went away. The number of brokers has seen a sharp decline since 2009, but there are many good ones still around. The mortgage industry now calls for mortgage brokers to pass a rigorous annual test and update their license every year. If you have suspect credit or want as many options as possible, a mortgage broker is still a very viable option that you can feel confident will find you the best deal.
Every borrower is motivated by different things. Some want the lowest possible rate while others want to close in two weeks. This is your loan and you can talk to as many different lenders as possible. Make sure you are comfortable with your lender. You should only have your credit pulled when you know who you are going to work with, but if you have an idea of your credit you can get a good idea without it. Choosing the right lender can be a very stressful ordeal, so the most important thing is that you feel comfortable with whoever you work with.