5 Ways to Make Working With Conventional Lenders Easier

[David Drew]

I'm in the process of funding a conventional loan for my first deal in Binghamton, NY (Broome County).  I'm also leveraging equity to do a cash deal simultaneously.  Some days I sit back and assume that everybody's doing what they're supposed to.  Other days I hound them and complain.  It all depends on my level of patients.  Not likely the best use of my time, but I'm impatiently trying to get to the point where I'm cash flowing...you understand.  

As I lament about how difficult and ridiculous this underwriting process can be, especially considering that I have A+ credit and I could pay the mortgage on this deal without getting rent, I figured I'd share a few best practices as I go.  So, here are a few of them:

1. Don't get mad.  the processors are just doing their jobs and they aren't necessarily the one's who feel it's necessary to run your credit three times and watch like hawks for every $100+ cash deposit you make.  Easier said than done, I realize.
2. Ask questions.  If something doesn't feel/sound right (like the aforementioned hard credit inquiries I noticed on creditkarma.com) ask for some clarification.  Often times, you're either right and it can either be easily explained or rectified.
3.   Get good at filing.  I have great credit, some money and a good day job.  That hasn't stopped my funding company from asking me for the same employment, paystubs and salary information no less than three times, so far.  I use their upload portal and every time a month ends or a statement is posted to one of my accounts, I save the pdf in a file.  That way, I just grab it and upload it, before the inevitable redundant request comes again and again.
4. Find a good conventional lender.  My goal is to continue doing business with the partners that make that easiest and to move on from others.  Shop around.

I'm open and eager to hear all other suggestions in regards to making this tedious process better...I realize eventually I'm going to get into Hard and Private Money, partnerships and Self Directed IRA cash but hell, the rates and fixed nature of this debt are just too attractive to pass on until I've maxed out.

[Chris Mason]

Hi @David Drew,

1) Typically only deposits that amount to >50% of gross monthly income need to be sourced and papertrailed. Sometimes underwriter judgement call asks for more, so I typically ask for >20% to be sourced and papertrailed. $100 is pretty ridiculous, unless you only make $300/month or something. 

3) That's the lender's incompetence. Many have gone "too digital," and paperwork gets lost in the black hole of the mortgage software (I've used all 3 of the top 3 mortgage origination software packages, all are complete and utter garbage... hint hint for any software engineers reading this). It's not super hard to maintain physical paper files. One of the top consumer complaints about getting a mortgage is repeated requests for the exact same paperwork, which old timers will note was not a problem 20 years ago when it was all paper files and everyone knew what "stacking order" was and lived by it like a bible. Sometimes technology gets in our way.

Other than that, good stuff. 

It's also really helpful when a REI has a spreadsheet or similar listing their schedule of real estate, rents, PITI, mortgage balances including HELOCs, etc, especially if it's in Google Sheets. We're obviously not going to use those numbers without validating, but it's good for envelope math and makes it super easy and quick to identify if we're missing any paperwork upfront. Sometimes technology helps us.

[Mark H.]

Originally posted by @Chris Mason:

 (I've used all 3 of the top 3 mortgage origination software packages, all are complete and utter garbage... hint hint for any software engineers reading this).

LMAO !! Now you're inspiring me to develop a new mortgage origination software. I develop enterprise applications for a living. I assumed that long established software out there has been perfected after years of usage ... I guess there is still opportunity out there.

[Mark H.]

Good points David and Chris.

The spreadsheet idea is very helpful in my experience now that I own multiple properties, it gives a great snapshot quickly to underwriting, it helped me quickly qualify for commercial loans, not as much for conventional.

I also learned to keep everything digital both in REI and my regular business. This way I submit all my docs immediately which leaves the lender totally surprised, but they move it to underwriting immediately.

I recently did multiple refinances in one closing with a lender I had used for 12 previous loans, so I was very familiar with their underwriting process. Unfortunately this last time I had to deal with a new underwriter who asked for explanation s about endless small details, as if he could never be satisfied. After 3 months of fully cooperating with their demands, I got exhausted and told them if I'm not qualified enough by now then let's cancel the whole deal, I'll go with a different lender. At that point they realized they went too far (the processing manager agreed that this underwriter exhausted everyone). So we closed on the loan, but now I'm doing new loans with a different lender - much easier! If a lender gets too difficult to deal with, try another lender, don't waste your time.

[Shawn Ackerman]

@David Drew Things will get better after the first deal is done!.  Trust the process.

[Mark H.]

One tip: Learn the underwriting rules of Fannie Mae or Freddie Mac on their websites, so when you talk with lenders you can tell which strict rule hampering loan approval is an overlay. Sometimes underwriters can ease the overlay rules as opposed to the rules of the note investors (Fannie Mae) which are set in stone. You can also ask other lenders about specific overlays for your scenario before you decide to submit an application. Generally, experienced investors can take advantage of some rules not available to non-investors. 

[Chris Mason]

Originally posted by @Mark H.:

Originally posted by @Chris Mason:

 (I've used all 3 of the top 3 mortgage origination software packages, all are complete and utter garbage... hint hint for any software engineers reading this).

LMAO !! Now you're inspiring me to develop a new mortgage origination software. I develop enterprise applications for a living. I assumed that long established software out there has been perfected after years of usage ... I guess there is still opportunity out there.

 Great, let's do it together and go make several million dollars. You'd be selling it to literal money factories, so it's not like your potential customers can't afford good software... it just doesn't exist. 

If anyone were to make good loan origination software, I think it would very much be...

Here's the current industry "leading" platform. It's a pile of garbage, but not as crappy as everything else out there. 

[Mark H.]

 Hmm, I actually used that software as a loan applicant for 7 years, I was not impressed one single bit.