First Meeting with Lender Advice

[Tommy Barone]

I'm looking to start the investment process so the first thing I did was talk to a person that I knew that works for a lender in Rhode Island. It's a bank that many people have had great experiences with.  After running the numbers based on my financial situation, he told me I'm essentially able to afford whatever I want depending on the loan program. I guess that's good news to start and he wants to meet with me Monday to discuss loan programs.

I just paid off all of my debt so my cash on hand is growing slowly from scratch.  Looking Ultimately for home to live in strictly residence and family eventually, but in the meantime looking to house hack or find investment opportunity. 

My questions to the community are:

My real estate agent who is a close friend of mine wants to talk to him directly, is that normal? 

What should I be prepared to ask - what kind of questions besides having my safe zone numbers ready to go?

What should I tell him? 

[If get into something that's costly, will I still be able to borrow from him if something else pops up] , that kind of thing? 

What questions are geared towards someone wanting to get into multi family and investing, owner occupied financing options, low down payment options, OPM, etc.

Are there are deal sweeteners that I can offer? 

[Chris Mason]

Originally posted by @Tommy Barone:

I'm looking to start the investment process so the first thing I did was talk to a person that I knew that works for a lender in Rhode Island. It's a bank that many people have had great experiences with.  After running the numbers based on my financial situation, he told me I'm essentially able to afford whatever I want depending on the loan program. I guess that's good news to start and he wants to meet with me Monday to discuss loan programs.

I just paid off all of my debt so my cash on hand is growing slowly from scratch.  Looking Ultimately for home to live in strictly residence and family eventually, but in the meantime looking to house hack or find investment opportunity. 

My questions to the community are:

(1) My real estate agent who is a close friend of mine wants to talk to him directly, is that normal? 

(2) What should I be prepared to ask - what kind of questions besides having my safe zone numbers ready to go?

(3) What should I tell him? 

(4) [If get into something that's costly, will I still be able to borrow from him if something else pops up] , that kind of thing? 

(5) What questions are geared towards someone wanting to get into multi family and investing, owner occupied financing options, low down payment options, OPM, etc.

(6) Are there are deal sweeteners that I can offer? 

(1) Good real estate agents will want to vet the lender for competence - remember, it's the lender that is presenting your case to the gatekeeper (mortgage underwriter) who controls access to 70% to 97% of the purchase funds. Further, when you write an offer the listing agent might just pick up the phone and call your lender directly (for that same reason), so it's good for you if your agent has an idea that he's not going to blow that conversation... or the transaction itself.

(2) Experience with REI. Most lenders are not REI friendly. None of our official licensing education/training/testing covers investment properties, it's on us to learn (or not) that extra stuff on our own. For example, I don't know squat about reverse mortgages because my extra "out of school" studying/learning is all about investment property stuff.

(3) The more the lender knows about your situation and goals, the better able to help you she will be.

(4) Taking on additional debt after preapproval can indeed move your numbers around, keep the lender in the loop. A preapproval takes a snapshot in time, but a new snapshot will be taken once you go under contract. That preapproval can only ever be as good as that snapshot is & remains an accurate picture of your finances. 

(5) Ask about Freddie Mac Home Possible. It's a 95% LTV 2-4 unit program for owner occupants that is an alternative to FHA 2-4 unit for folks just starting out. You're doing yourself a disservice if you don't at least compare the two. FHA 3.5% down is more popular on BP, IMO FHLMC Home Possible is often better financing for a very similar down payment that is under-appreciated on BP.

(6) Not necessary. If your lender and that agent do not have a history of working together, the agent is purchase-focused (some agents are mostly listing agents), and the lender is purchase-focused (some lenders are refinance focused), then both will be evaluating each other for potentially doing business in the future together. So that relationship carrot is already there. If you feel well served by the agent, tell the lender, and if you feel well served by the lender, tell the agent. Real estate is about relationships, first and foremost, no matter if your an agent, real estate investor, lender, whatever. 

[Anthony Thompson]

<< My real estate agent who is a close friend of mine wants to talk to him directly, is that normal? >>

I think it's normal as far as the agent wanting to stay aware of where in the loan process you are.

A lot of what agents do is stay aware of various timelines (e.g., the mortgage contingency deadline) and keeping the wheels of progress moving, so I think that's normal and fine.

If you are concerned you could remind your mortgage person that while he's free to share generalities about the status of your mortgage application, he's not free to divulge any personal financial information to the agent.

That should be one of those "goes without saying" kinds of things, but there's probably no harm in being explicit about it if you're concerned.

<< What should I be prepared to ask - what kind of questions besides having my safe zone numbers ready to go? >>

Usually the mortgage person will ask most of your questions.

The important thing is, if you are talking to multiple mortgage people, let them know about that up front and don't commit to paying for an appraisal until you've picked the one you're going with.

Do some honest thinking about what you WANT your monthly mortgage payment (principle & interest, and taxes and insurance - aka PITI) to be. Maybe, according to the mortagage person, you can afford $2000/month. Do you actually want to spend your max though? (Especially if you also want to own rental properties later.)

You do want to ask about all fees, so that you won't be surprised by them, and you do want to get an estimate of how much you'd have to bring to closing for a house in the $X price ball park, again to avoid being surprised close to closing.

Depending on where you are in the buying process, the loan person may ask who your attorney is, or may give you a "list" of attorneys they recommend. I was told by an attorney that while it's presented as "this is the list you can choose from", often you can choose a different attorney just by asking - it's more of a "suggested" list even though that's not usually how it's presented. But you'd want to ask about that of course, if you have an attorney you want to work with who's not on that list.

You'll also want to get the list of documentation they're going to need for the loan applicaiton, though s/he will give that to you. It'll include things like last 2 years' tax returns and W-2s, 2 months of complete bank statements, last 3 pay stubs, etc.

If you're planning to buy a property that needs work, and doing something like a 203(k) loan, make sure to mention that up front and ask about what additional documentation they're going to need and what else is involed beyond a "regular" mortgage.

<< What should I tell him? >>

Whatever he asks, of course. You're asking the bank to loan you a large sum of money, so they're going to want to understand your financial situation thoroughly, so expect detailed applications and lots of questions/documentation. In small residential properties, they're lending based on the individual as much as (if not more so than) the property itself.

<< If get into something that's costly, will I still be able to borrow from him if something else pops up , that kind of thing? >>

It will be based purely on the numbers. Yes, if you spend a lot on your personal residence, you will have less borrowing ability for the next property. It won't depend on how nice you and the loan person chatted, whether you had any hobbies in common, etc. The person you speak to, who takes your initial application and holds your hand through the process, is NOT the one who makes the final lending decision, chances are that's done by a combination of computer algorithms and people located in other states.

<< What questions are geared towards someone wanting to get into multi family and investing, owner occupied financing options, low down payment options, OPM, etc. >>

I think you should just be honest about what you're looking for and about wanting to understand that if you want a certain kind of property, wanting to understand what information the bank is going to need.

The lenders are the ones with the money, they're the ones taking the risk and the ones who will be asking you questions based on what they need to know, in order to make the loan. I think you're over-thinking the process a bit.

The primary way you can help the lender and process is to be specific about what kind of property and price range you're looking for, and to fully disclose everything about your financial situation.

If you're looking for a fixer-upper 203(k), let them know up front. Rental property where you'll occupy one of the units, let them know up front - including how many units you think you'll be looking at (2 fam? 3 fam? 4?). If you plan to move out X years down the road, ask the loan officer what that will mean for the loan, whether you should really live there for a certain # of years before moving, etc.

(The latter is also a question for your accountant since there are tax implications for living in a property X years and then moving out or selling.)

<< Are there are deal sweeteners that I can offer? >>

Loan officers love it when you bring documentation to the initial meeting because it means you know what's required and you'll probably be easy to work with. They love it when you have good records (sexy) and you're not afraid to show it. If you want brownie points feel free to bring to the meeting:

• 3 most recent pay stubs
• 2 years of complete Federal tax returns (all pages)
• 2 years of W-2 tax returns
• 2 months of bank statements (all pages)
• Explanations for any deposits on those bank statements which weren't payroll/salary

And if you have extra time on your hands this weekend and want super duper brownie points, you could start working on the detailed listing of income, expenses, assets and liabilities on a version of the Uniform Residential Loan Application.

Or you could just go to the meeting and let her/him tell you what they want and need from you :)

[Tommy Barone]

Amazing guys, thanks for that great advice!

[Tommy Barone]

Amazing guys, thanks for that great advice!

[Cody L.]

If it's a 1-4 Family your relationship with the lender or your presentation or knowledge will mean very little.

They do generic conforming loans that get sold. It's all about your (tax return) income and credit score.

Your brother can be bank president of the bank and it won't help.

If it's commercial, then your ability to "sell" yourself and make the bank comfortable that you know what you're doing matters much more.

To give you an example, I can easily get a multi million dollar loan with no issues from several local banks. But if I tried to refi one of my "early days" $100k single Family homes. Or even my own personal residence, they wouldn't do it. They know I'm a strong borrower but I simply don't fit the generic conforming guidelines.

[Tommy Barone]

Takeaways from meeting: (To clarify, I'm looking into rental properties before my personal home)

I have a home already so I can't use first time homebuyer.  My income allows me to continue on even with that mortgage.  

The only way to go for low down payment is FHA. Downside is that, as you all know, you have to buy into the PMI (for a cool $7K based on $410K), and then pay .85% PMI for the life of the loan on top of that.

Seems like the Freddie Mac has an income limit of about $71K, but he's looking into it - I'm over that cap.  

From the investor standpoint, It didn't seem like there was a way to get another low down payment option after I own an owner occupied low down payment home, even if I live somewhere else later.  Underwriter won't buy it, and I've been led to believe that I'll only ever be able to get another investment property by putting down 20% for Single, or 25% for Multi.  I feel like I have a lot of BP reading to do because I feel there are more opportunities than that going forward.  

So...I can pretty much qualify for whatever I want, but after this one purchase, it seems like it's going to be difficult for future investment purchases with little cash, as far as the bank lending side of things.