WHAT YOU DON’T KNOW!
- JUST A PAPER – Anyone can draft a pre-approval in less than 5 minutes. They use the same copy, edit borrower name, change the date… but closing the loan for you or not is a different story!
- LENDER WITH CARING – A good and careful lender is the one will request you submit an application with basic information needed, a copy of your Driver’s License to verify who you are, check your credit to make sure you’re qualified. Also, they would help to verify your deposits for programs that needed to verify. This is important in-advance step to help the loan go smoothly. Don’t feel bad if a lender asks for documents. They want to your loan go smoothly without having you go through 99% of the process and fail in the last minutes and paying all upfront fees for nothing: Earnest Deposit, Inspection, Appraisal…
- NOT A COMMITMENT TO FUND – A lot of borrowers think this PRE-approval letter is everything they needed to offer a property and to close the loan. No! No! No! It’s just a start 1% and 99% the rest depends on a lot of information: Income & debt calculations (DTI), income verification, deposits verification, credit report, property legal description, survey, appraisal report, current market value, current market rent, DSCR, insurance policy requirements, title work, questionnaires… No one would spend their time to do all these for you before you seriously have a seller-signed contract on hand and ready to move ASAP!
- RATES WILL CHANGE – A lot of people would be surprised why the pre-approval letter offered 3% and now after reviewing the appraisal report or final underwriting say 3.35%. It is what it is. That’s why we called it’s a PRE-approval letter, not APPROVAL LETTER or not a FINAL APPROVAL LETTER. Pre is a pre-work, pre-qualification…! Rates are up and down based on the risk of the whole deal. Credit, Financials and Asset Condition are the most important.
- BE PREPARED – The pre-approval letter doesn’t approve you anything yet except your credit score. Listen to the experts! Do the best for the current loan and provide exactly the docs that your bank asks but always have a back-up plan. Working with experienced realtors, loan officers and mortgage brokers is always the best. Save time, energy and money!
HOW TO GET THE LOWEST INTEREST RATES
FOR REAL ESTATE INVESTMENT?
I have been long enough in the lending industry to understand what banks want and what I have to have in order to get the lowest rate for all my investment properties. To me, I never take any rates over 3.5% for investment deals.
Remember this, THE LOWEST RATE is for THE 0% RISK BORROWERS.
Let’s talk about RISK today!
- TRUST / CREDIT SCORE – All US lending institutions use credit scores to know how you manage your finance: your money, your paychecks, your investments, your debts, your liabilities… 740 is a standard point. If your score is lower than 700, go fix it before stopping your car at any banks. Doesn’t matter how high your income is, how good the deal is, how much cash reserves you have… If banks don’t TRUST you, they deny your loan request right at the door.
- ABILITY TO PAY BACK / PROVE YOUR INCOME ON PAPER – Come to money, talking doesn’t work, only numbers on paper can! When you show someone your verified income and those papers speak up for you “Hey! I have so much money coming in and I can pay you back anytime I want”! Banks love this! They love to invest in the deals with someone who knows the game so well and can afford anything they want.
- COLLATERAL CONDITION / VALUABLE ASSET – Hey! You know this. Pick a nice property. Great location. Draw all money in. High market rent. Great open floor plan. Beautiful front and back yard. Nice brick walls. Who would say no to this? Make sure the property is in a great shape to generate monthly cash flow in the next 30 years without causing you any headache! Banks see the whole picture far from the day you close to the end of 30-year term. If you’re too perfect but the property is too old or in a not good neighborhood or in flood zone or has major repairs or low market rent, your loan still can be denied after reviewing an appraisal report or offered with higher rate than what a pre-approval showed you before.
- BIGGER DOWN PAYMENT / BIGGER SKIN IN THE GAME – Standard down payment for an investment deal is 25%. Ask your Loan guy about “What rate if I down 35% – 50%…?” The rates will drop and you will be amazed! Bigger skin in the game make the lender feel safer because YOU WON’T GIVE UP EASY ON YOUR MONEY!
- BUY DOWN RATE OPTION – At the end of the day, everyone wants to make money. You too. Me too and banks too! Ask your loan guy what rate if I want to buy down the rates! This means you pay upfront money to the lender at closing. They got the price they want to sell the rates for and you got the rate you wanted. Everyone is happy!
WHAT TO KNOW
REFINANCE YOUR INVESTMENT PROPERTIES
Do you know?
- .PURCHASE loan (buy a property) is easier since banks and lenders are open for all investors to grow their portfolio.
- RATE & TERMREFINANCE (for lower rate and longer term) is hard since banks have to find out what would make them or other lenders offer you lower rate and longer term and didn’t offer it to you in the first time.
- CASH-OUT REFINANCE is harder. If you approach a lender with a cash-out request, the very first concern they have would be What would the cash out fund be used for? When someone needs to take out money from their assets, it means they need money. The lender will stay focused at this point, review all documents in the underwriting step. When all docs are clear and clean, the underwriter will use “common sense”to get a final approval or not. Remember, banks want their money back. They don’t want your assets. So all they would do is making sure you use the cash-out fund right, still have your cash flow from the property to cover your mortgage and good cash reserves for worst case scenarios.
WHAT TO PREPARE FOR A REFINANCE LOAN!
- CREDIT SCORE – Surely if you want good interest rate, your credit score should be from 740 up. Lower is fine but interest rate would be high (700 score min).
- THE LEASE – Have the lease for 2-5-year term with your tenants. Don’t do anything with anyone without an agreement! Draft nice one, enough information and what both sides agreed have to be shown on this paper. This piece of paper will protect your right as the landlord and also keep your tenants on track about paying rent, tenant insurance, maintaining your property in the same way the tenants walk in.
- RENT CHECK IS THE BEST – Keep your record! Do not receive cash. Money order is ok. Zelle sometime is acceptable but Zeller name should be the same as the tenant name on the lease provided and also the last three months of bank statements should show the same amount and the transactions.
- ONE RENT CHECK IS NECESSARY – If SFH property, it should be one lease and one check. If multiple unit properties, yes, should be one lease and one check per unit. Do not have your SFH property break down with 2-3 checks a month from tenants like sharing rooms in one house. It doesn’t look good and it doesn’t look right either for this type of property. Once concerns raise up, more documents would be requested before a “clear to close” signal and actually close the loan.
- LET THE TENANTS PAY THEIR OWN UTILITIES – Do not pay for them under your name. Do not include all bills into the rent checks. In some cases, at a final stage, the underwriter may request the mailing bills to verify the tenants and your cash flow sources. You never know! Be prepared!
PAYMENT RESERVES – Have at least 6 months or more during closing. The more money you have with you, the safer the lender feels. With this requirement, banks want to make sure, after closing, you still have some money left to handle your monthly duty!