Visiting Banks Before Our First Deal

[Joseph Morris]

So we are looking for some advice... We've identified our 'farm' and have been studying and getting to know the recent market. Our primary interest is fix-flip (with BRRRR as a VERY acceptable alternate exit strategy - our long term goal anyhow...). We've been looking at hundred of listings, and analyzing dozens of potential deals, and have are just about ready to 'take the plunge', as it were... We would like to finance our first deal (first several) using conventional financing. We would like to secure financing prior to making our first offer (similar to a 'pre-approval' for a primary residence). We plan to visit local banks and meet with the loan officers with the above goal in mind... So here are our questions: - what should we prepare / take with us to the bank? - what questions should we ask the loan officer? - suggestions on how to approach the discussion to maximize our likelihood of success? Ideally we'd like to borrow purchase and part of the rehab costs - though we know that'll be difficult to accomplish. Any thoughts are appreciated...

[Penny Clark]

@Joseph Morris, I'm not a lending expert but my husband and I have done our fair share of conventional financing and refinancing for properties. You will want to provide items listed below:

- Tax returns w/W2s for last two years; If you are self-employed, two years worth tax returns and profit and loss statements

- Two months of most recent pay stubs

- Six months of PITI reserve funds for all mortgages including subject property

-Two months of most recent bank statements (any account you are using to fund closing costs, down payment, etc.) BTW - you should have this ready to show listing realtor and seller to prove you're a serious buyer

- Letter of explanation on the source of any large deposits recently put into your account

Once you select the property, you can provide an outline of expenses and market rent to show potential positive net of at least $300.  

Make sure to ask for a PREAPPROVAL Letter not a PREQUALIFYING Letter from the lender with qualifying amount. 

Put all these items in an easy to read format (binder/notebook). You may also want to include a letter about yourself to showcase any skills and abilities you have in real estate investing, landlording, finance, remodeling, etc.

Before you talk to a lender, check your credit to see where you stand. Go to freeannualcreditreport.com or creditkarma.com. The higher the number, the better the interest rate.

I would also look at your current debt to income ratio - what you owe now compared to your income and what you owe now in addition to the subject property PITA to your income. Aim for both of those numbers to be no higher than 35-37%. If you purchase a residential income property - like a 2-4 unit - you may be able to apply a percentage of the gross rents to your income, however, some lenders like to see two years of landlord experience to do this - check with your lender. 

Questions I'd ask the lender would center around flexibility for financing:

- Do all your loans get sold on the secondary market or do you keep some loans in house if borrower meets specific criteria (portfolio lender) If you state it this way, the loan officer will know what you're talking about

- What loan packages are available to first time home buyers or first time buyers of investment properties (FHA, FHA/203K, VA, etc.)

I'm sure some of our BP loan professionals  can provide more in depth, expert information, but this should get you started.

Good Luck and share your story when you get your first property!