Conventional Loan - Apply to 2 Banks?

[Maura Paler]

We are in contract for a single family investment property (vacation rental). This is our 4th VR investment property, will be our 3rd mortgage. 

We have been pre-approved by one bank (which is no guarantee of a loan we get that), but have found a better rate with another. We need to apply today as per the terms of our contract (within 5 days of signed contract - and we are heading out of town tonight!). 

Our first question is, should we apply to both banks ($500 application fee for each) to better assure a loan?  

Our second question is, we have relatives willing to guarantee the loan, but this would be a last resort we don't want to ask that unless the deal is ready to fall through - so if one (or both) banks rejects our application, and we add them as a guarantor, will that be considered a new loan and we have to start all over again, thus going over our 60 days to close contingency in contract? 

Our concern is that getting the loan will be tight, it was last time, as we have 2 mortgages already and high monthly living expenses (NYC) and we are both self employed. Banks scrutinized every penny and we have a very aggressive accountant. 

We are certain the property is right for our budget, is a good investment, so that is not in question. 

Any advise would be appreciated! 

[Dion DePaoli]

Credit scoring assumes consumers will shop for mortgages.  So multiple initial mortgage credit inquires on your credit does not impact your score.   The negative score impact is a myth.  There is also a grace period for a rescore a couple weeks in as that is a typical part of the process in mortgage lending.  Re-checking the credit for new credit entries prior to closing and funding.  Consumers are expected to be prudent shoppers.

I have noticed this bank trend of trying to charge application fees upfront as a method to deter shopping for a loan.  The bank can not make money on an application fee outside of the costs of the vendor reports that may be ordered.  I think the specific terms in Dodd Frank are application fees can not be revenue centers.  I have seen some abuse of this lately.  Might ask each bank what happens if you choose to go with a different lender regardless of their rejection of the application and what happens upon rejection to that application fee.  I would not throw it away as cost of doing business.  

The relatives that you speak of would not really be guarantors per se, they would be Co-Borrowers.  They along with you would be named on the security instrument and note.  As such they would be underwritten just like any other borrower on the loan.  So their total income, assets and liabilities would get scrutinized just like yours will be.  There are times when this helps and there are times when this really does not help because the Co-Borrower brings all their liability to the party on top of the 'Primary Borrower(s)'.  This is not a function of them simply signing a guarantee document with no deep underwriting.  Sometimes family is cool with the gesture of backing you up but when the underwriting starts they get a little uncomfortable.  That you will have to gauge.

The key here is to put some extra effort into ensuring either or both banks which you apply with does enough initial underwriting to grant you the confidence to move through the loan underwriting one way or the other. You can try making application and bring with you your income and asset documentation along with the other property documents like mortgage coupon/statement (PITI - HOA), rental/lease agreement and giving it to the LO upfront. They should be able to run the application with the actual income and asset numbers to see if you get approved or denied. Sounds like the concern is around DTI. (Debt to Income) Feel free to specifically ask what the guideline is in detail and judge a little for yourself. The LO should be able to discuss with you the implications of the documents you have to use and the current liabilities that you owe and how that will affect your eligibility.

Since you can not be in the two spots at the same time, whom ever you apply with first will give you an idea of whether the plan can actually work.  No matter which way it goes.  If you get rejected or if the LO tells you what the barrier to approval is, have that discussion with the next guy to see how they might/can handle it.

Loans fail from application because details matter.  Do you make $100k or $95k.  Are your liabilities $2k a month of $2.3k a month.  The best way to get a good application answer is come prepared to give the application with your required borrower documents and make the LO use those numbers to run the application.  Do not settle for ambiguous LO answers or a lazy approach to the workload.  Good luck.