Steps to take in order to be financially ready to purchase

[Brittany Villamil]

Hello!

I am wondering how some would advise me to go about financing an investment home. 

Theoretically speaking.. if I drive past a run down home which I see to be foreclosed ..what would I need to have ready to go in order to be able to make an offer. Lets say I was using a conventional loan.

Do I need to be preapproved? Do I need to have something set up with the bank already?? Or do I do that process after I make an offer? 

[Chris Kennedy]

@Brittany Villamil 

I just responded to your other post, but I figure I'll see if I can be of any help here also!

I would definitely recommend having 2-3 lenders lined up before submitting an offer. By lined up I mean you have met with them, they have told you the documentation required, and have reviewed your financial position and basically given you a preliminary qualification. You can go a step further and get pre-approved (they will review your tax returns, run credit, etc), in which case you can submit a pre-approval letter with any offer you make. This will make your offer much stronger.

The typical documentation you will require includes at least the following:

2-3 years tax returns

W-2s

Recent pay stubs

1099s if self employed

Bank statements for the past few months

Proof of funds for downpayment

Once you have a property under contract you will also need info pertaining to the property.

I suggest you put together a complete packet of information, well organized, so you can submit it to your lender quickly as soon as the deal is a go. A great book for this is "Commercial Mortgages 101" I forget the author, but it will serve you well for residential loans also. Basically it shows you how to put together a nice packet for the lender.

Lastly, if you're going for a conventional loan, you might be limited by the condition of the property. Complete rehab properties may not be feasible unless you go with the FHA 203k loan option which can be tedious.

Feel free to PM me if you want more info, I'm happy to explain in more detail. 

[Brittany Villamil]

@Chris Kennedy This is exactly what I was needing! the info is great. I am trying to learn as much as possible and be prepared beforehand. Anything else I should know...feel free to share the knowledge! Perhaps, I should be asking a question that I'm not asking? Thankful for your response it's helped already. Thanks!

[Jerry Padilla]

@Brittany Villamil  

You will need to be pre-approved before making an offer. As for conventional the home needs to be in livable condition to qualify for financing. 

A great way to start out with low money down is an FHA multi-family that you also occupy.

[Brittany Villamil]

@Jerry Padilla  I didn't know that. Thank you for that info!

[Guy Gimenez]

@Brittany Villamil 

1. Find a local investment partner who knows the market, values, strategies, contracts, negotiation, communication skills, etc. Going alone at REI with limited knowledge is like trying to operate on your broken arm after reading a book. Trust me, the Guru's make it look easy...and it always looks that way until you get yourself in a serious bind because of a lack of knowledge.

2.  Your partner must be able to show that your best financing option is generally to get the seller to entertain leaving their existing financing in place, or if the house is paid off (estate, etc.), then having he seller carry a note short-term.  Getting this done is often where experience counts.

If you find a knowledgeable REI partner to help you with the first 5 or 6 deals, it will be worth whatever amount of the profits he/she chooses to take as it decreases your your learning curve and the probability of making a one or more very costly mistakes.

[Brittany Villamil]

@Guy Gimenez  Thank you for your input!

I definitely see the value in having someone more experienced help out in the whole process.

I hope to prevent any lack of knowledge situations by reading as much as possible and asking questions.. I also understand that there is a point where we must step out and put it all into action. Trying to be ready as possible, for sure! 

I appreciate your time and input into BP!