Should I get pre-qualified by multiple lenders?

[Paul OBryan]

My wife and I plan to buy our first small MF property out of state (we're in CA) sometime this year. We are just beginning the process of getting pre-qualified for a particular state and have had preliminary conversations with several potential lenders, both institutional and private, commercial, but we haven't yet submitted our documents to anyone. We don't have a property in mind but want to have a lender ready to go when we find something on which to make an offer. 

Is there wisdom in getting pre-qualified (but not yet credit checked) with a number of lenders to see who would finance us and give us the best terms, or should be just focus on one at a time?

Thanks

[Russell Brazil]

Originally posted by @Chris Mason:

@Russell Brazil always talks about this. 

 Thanks for the tag Chris

The cheapest lender, or at least the cheapest quoted is not necessarily the best, and Id say is often not the best.  If the market is a competitive one, like mine is, what is more important is having the lender who can and will close the deal seamlessly, and on time.  Just this past week one of my clients got a deal specifically because of the lender. In fact we used @Upen Patel as the lender.  We had gone in with a fully underwritten loan commitment, which added a lot more weight to our offer, and the fact that Ive closed plenty of deals with this lender and could attest to their ability actually landed us the property over another potential buyer who offered a higher price with a contingency to sell their previous property.  If my client had been using the cheapest lender he could have found, which I typically like to call chop shop internet lenders...he simply would not have gotten the property.

Now if it is a less competitive market that is forgiving about lenders screwing up, and will constantly grant extensions to close....maybe having a good lender doesnt matter.  But it certainly does in the competitive markets.  Even in non competitive situations it can still put you at a disadvantage

I closed a transaction a couple weeks ago, this was a non competitive situation, and my client shopped around and found the cheapest lender he could.  A few days after we went under contract the loan officer told us they would need an additional week and a half to close.  So now I was at a disadvantage after negotiationg the home inspection, because I couldnt push too hard because I was going to have to get the sell side to agree to extend the contract.  So where if I had been using a lender who simply could have closed on time (and I asked for like a 6 week closing when 30 days is standard for my market, we had to extend to 7 weeks) now I was castrated when trying to negotiate the home inspection. Instead of being able to ask for 6, 7,8 repairs from a motivated seller....I think I could only realistically reach for 2 since I would have to ask them to be gracious enough to grant us an extension to close.

It is really interesting that your clients all seem to think that they know better, and they think you are overpaying for your loans, when Im closing 2 or 3 deals a month.  They should ask themselves why am I using the same 2 or 3 lenders over and over and over again. Im using them because they know how to close the deal, and close it without problems. Trying to save a few hundred dollars in closing costs is just absurd if it is going to cost you the deal altogether, or cost you potentially thousands of dollars of leverage in home inspection negotiations.

I will say though that Ive had a couple transactions in the past year where using a bad professional helped.  This one loan officer left the transfer taxes on the closing disclosure. Me and the title attorney both asked him, are you sure you are good with the CD.  He said he was....so the bank had to eat the transfer taxes. That saved my client thousands of dollars. I had another deal where the client found their own home inspector, who cost about half what a normal one would.  The client wasnt present at the home inspection...this guy went through the property in 20 minutes, and noted 3 problems.  Even a newly built luxuyry home is going to have a couple dozen things of inconsequential value listed...this guy listed 3 things in 20 minutes. Made closing the deal much easier for me, but my client never got any sense if the property was ok or not. Thats fine, his choice to use substandard services.