Should I get pre-approved before locating any deals?

Question

Hi,

I am new here so many apologies if this has already been answered in another blog post or forum post, but is it necessary or a good idea to get pre-approval for purchasing a property prior to searching for a deal? I am going to do the homework and run the numbers so I will know if I can afford the property and if it will cash flow, however I want to know how much a bank would be willing to provide me as well as a rough estimate of the interest rate I would be getting.

My strategy is buy and hold and I am targeting multi-family (duplexes and triplexes). Lets say I have $20,000 for a down payment plus another $15,000 for renovations and another $5,000 for closing costs. I am planning to get a traditional mortgage through a bank so I would need 20% down which means I would like be targeting a maximum home price of $100,000.

Do I need to provide a bank with any further information than this or can I just walk into a bank, ask to be pre-approved for a mortgage financing on an investment property, and give them that short list of information? Is there any other information I would need to provide them (other than information such as my income and debt)? Is this even the recommended pathway for this amount of money?

Thanks and again I am sorry if this has been answered 100 times before,

Jon

Dave Skow · Answer

best to get  fully pre approved to be in strongest  position to make an offer ..this means  providing all supporting data to the lender/ loan officer  and also having a tri merge  credit report pulled ….and then having a real underwriter  review and approve the data / scenario   ( not  just using some sort of automated  underwriting system ) ...good luck

Chris Mason · Answer

Local to the real estate you will be buying. Each state has it's own norms, and within states there are even regional norms. You don't want to fall out of contract because a lender 5 states away didn't know how local transfer taxes work, didn't disclose it properly, and now at the 11th hour has to "re-originate" your loan file from scratch to remain compliant, but oh wait the seller isn't going to wait around for that when they have a backup offer $25k higher than yours in their back pocket!

Jon Graham · Answer

Hi Jay,

Thanks a lot for that clarification. I don't have a specific lender in mind just yet, but I am considering a few local banks. I was thinking to go and speak with them to talk about my plans and just get a conversation started with some lenders. In these discussions I was planning to bring up pre-approval amounts so I wanted to see if this was worthwhile and something I need to consider. I had not thought to ask about their DTI requirement so that is a great piece of information.

Thanks again,

Jon

Scot Howat · Answer

On a totally different topic, why wouldn't you just buy something that is rent ready instead of putting 15k into it?

I prefer to preserve my capital for buying more properties.  Just something to consider.

Mora Clark · Answer

@Chris Mason Thank you, Chris! :)

Mora Clark · Answer

I am on the same boat but I am looking at an out of state investment. So was just curious if it is better to find lender local to where I live or to where the investment property is.

Jay Helms · Answer

@Jon Graham - essentially a pre-approval is a soft-credit pull, meaning the bank is really going to just look at your credit score. You won't receive a conditional approval until they pull a hard credit and look at everything.

If you have a lender in mind, you'll also want to know what they require your DTI (debt-to-income ratio) to be.

Should I get pre-approved before locating any deals?

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