Mortgage pre approval or look at listings first?

Question

Hey All!

I'm thinking of buying a multifamily to rent out. I'm going through the mortgage pre approval process right now but I was thinking - should I be looking at properties before I do this or should I get the loan first?

Thanks,

Darwin

Richard C. · Answer

I agree with Joe.  I actually would have gone further.  I have never gotten a pre-approval until I was near the point of making an offer (obviously after looking at many properties.)  When you do get a pre-approval, there will be a hit on your credit from the hard-pulls on your reports.  If you have to get another one a couple of months later, there will be another hit.

Any realtor who told me I needed a pre-approval in order to look at properties would be a realtor who did not get my business.  Period, full stop.  There are many who would be happy to show you around on the basis of nothing more than a request, and many more who will do so with some sort of evidence that you have some money (like a bank statement.)

People on this board like to talk about "control" as it relates to tenants.  Well here is a "control" situation.  You are the customer, you have the money, they have competitors who will be happy to take your business.  You have the control.

Start looking at houses.

Bryan L. · Answer

@Darwin Liu  - It will depend on the specific loan program.  Talk with you mortgage person about that.

Richard C. · Answer

And now you have started a whole other discussion.  Which should he do, get pre-approved or pre-qualified?  Not the same thing, as you know.

Darwin Liu · Answer

Hey All,

First off, this is my first post on biggerpockets and I'm amazed at all the great information and help I'm getting - thank you all very much!

My multi family wouldn't be large, I plan on getting at max a 4 unit residence. With that said, I plan on "living" in 1 unit to take advantage of a low deposit and lower insurance rates. My plan will be to buy distressed, rehab, rent out and make a good return.
	
	Another side question - if I apply for "pre-approval", am I required to use their services or are there fees?

Bill Gulley · Answer

Prequalified=taken off the applicant's information, not processed or verified but if they are close to correct they can tell you what to shop for.

Preapproved=application taken and verified, amount is given they are qualified for subject to property and appraisal. Usually they will toss in other little exits, subject to some verified condition that wasn't met entirely.

A buyer can be confident to shop being prequalified, which is also what a Realtor may do. A seller is more confident in accepting an offer when they see a prequalification.

No one is guaranteed anything until after closing, sometimes 3 to 5 days after closing, LOL.

You may not actually be approved to fund until just before settlement!

With multi-fam, the property aspects will be important, 5 units or 12 units or 36 units. At some point a lender may not be comfortable with your management experience or ability to run an operation so, in that Pre stage, ask where the lender will be comfortable with you abilities. You can avoid this area by agreeing to hire a reputable PM to some degree.

Unless you have significant funds, IMO no newbie should be getting into larger multis without management and maintenance operations in place, if you're just an absentee owner fine, if you plan on an active role, start small.  :)

Richard C. · Answer

A hard pull is any pull of your reports that you authorize, for the purpose of getting credit.

How much additional inquiries hurt your credit depend on how many you already have, among other things.  It is not a huge number of points, but if you were near an important threshhold (if you have a 742 FICO, of example) it can cost you big.

App-ing with three lenders is fine, because if the applications are within the same month, they will be considered part of the same search for credit by FICO.

But once you have a pre-approval, move fast.  You don't want to have to get another one.

And always keep in mind that any agent can show you any property.  You're the boss, they have zero leverage.

Bill Gulley · Answer

Get preapproved, they can tell you what price they will consider, then you go shopping knowing you can have a chance of getting that loan amount required. Otherwise, you're looking at deals you can't pull off.

If you have no rental experience, they won't be simply relying on the property but you more so, so get prequalified. :)

Darwin Liu · Answer

Hey Richard,

Wow thank you for the advice, I never really thought about it like that. When you say "hard" pull, what does that mean? I know I would get auto loans and they would pull my credit score. Is that a "soft" pull or a "hard" pull? 
	
	I was always under the assumption that a pull on your credit will decrease your score, but only by a few points?

I actually went through 3 mortgage companies and am in the process of sending them paperwork, should I stop that and only go through 1 that I like? The cons I see from that are that I won't get the best rate - what do you think?

Thanks in advance Richard!

Darwin

Darwin Liu · Answer

Thanks for the advice Joe! I'll start looking right away. Btw, your progress is amazing ($7,000,000) in 6 years.

Joe Fairless · Answer

@Darwin Liu now that you have it in motion I would start looking at properties. Just let the broker/s know that you are working with XYZ company to get the approval and anticipate it being in the 500k range. That way you don't lose time during this process.

Mortgage pre approval or look at listings first?

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