Bank lender options in DFW area

[Scott Reese]

Hey yall,

As a brand new real estate investor, I'm in the process of assessing my options when it comes to financing, contractors, insurance agents, etc. in the DFW (Dallas Fort Worth) area in Texas. I've read that it can be more difficult to finance deals through loans from large, national banks like JP Morgan Chase or Bank of America. Supposedly, smaller regional banks can offer more flexibility on things like the size of the down payment required and quality of the property being purchased. Is this true? And if so, does anyone have experience with or know of any regional banks in the DFW area that are great for financing real estate investment properties?

[Andrew Postell]

@Scott Reese thanks for posting! Always great to hear from a fellow Texan. Bigger Pockets does have some good state specific forums and Texas is their most active forum. Feel free to post there if you ever need some more "local" advice about things.

I would absolutely firmly agree that local lenders are significantly more flexible than larger banks.  And it's not personal. Investment properties foreclose at a higher rate than primary homes.  So if I am a very large bank, that might be publicly traded, maybe I don't want that exposure.  And to further that, shareholders may not want that either.  So they limit their risk by being "conservative" towards higher risk properties.

But a smaller, local bank, that might not be publicly traded, might be totally good with lending to on investment properties.  It's not guaranteed...but it's more likely.  But how do you know for sure?  So let's cover 2 things:

1. The 2 main loan types that we have as investors
2. The questions we should be asking when we interview our potential lenders

Let's begin.

Generally speaking there are 2 main types of loans for investors: “Conventional” and “Portfolio”

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names). These loans are all 30 year fixed rate loans. They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending. Fannie/Freddie money = Fannie/Freddie rules. NOT the bank's own money.

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. These loans are a lot more flexible than "conventional" loans. Bank's money = Bank's rules. If they like you, then maybe they will lend to you. But since there is a limit to how much money the bank has access to....their rate will be higher...and usually a shorter term. The most common portfolio style loan in Texas is a 20 year adjustable rate loan. These loans are easier to get but the terms are different.

Fannie/Freddie types of loans will be available everywhere and those rules might change SLIGHTLY between lenders. Portfolio loans can run the gambit. Since each lender controls it’s own money you will have to call around to ALL the banks to learn about all the programs. A mortgage broker will help with this some…but even the best mortgage brokers don’t have access to ALL portfolio loans out there.

So what should I be asking my potential lenders?

Questions for Lenders

1. When do you start using rental income to help me qualify? (the answer needs to be immediately)
2. When do you start using “After Repair Value” on my property?
3. How long do you need me to be on title to refinance? (this is important if you do need a short term loan to purchase then refinance out - and the answer should be 1 day...very important that it is 1 day on title is all that is needed to refinance)
4. What is my minimum down payment required? (if they only require 15% down on a single family home that is usually a good sign that you are working with a flexible lender)
5. How many loans can I have with you?
6. Can I change title to my LLC?
7. Do you sell your mortgages?
8. What is your loan minimum?
9. Can you explain to me what your reserve requirements are?

*WHEW*  Now, I do realize that I didn't answer your question directly.  Maybe I'm a little biased with it but feel free to keep asking if you need.  Thanks!