Choosing The Best Lender For Your Next Deal
By Paul Esajian on January 12, 2015
If you are looking to finance your investment purchases, you need to see exactly what you are approved for. Very few, if any, realtors will show you listings without a prequalification letter in hand. That said, you need to reach out to a lender to run a credit check and a quick application. Who you use can make all the difference between loan approval and finding an alternative means of funding. It is a common misconception to think that all lenders are the same. As you will see, not every lender is the same. Some lenders will be better suited to the deals you are working on. The trick is choosing the best lender for your next deal.
Before you choose a lender, you need to evaluate your lending goals. Many investment loan programs and guidelines have changed over the past few years. Some of these programs are slowly making a comeback, but investment loan purchases are still some of the hardest to get approved for. You should make an honest evaluation of your situation and have some idea of what kind of borrower you are. If your credit is perfect and you have no problem documenting all of your income, getting approved may not be your biggest hurdle. In that case, you may be more interested in the rate or ease of approval. If you have some dings on your credit or other approval issues, you should look for a lender that has flexible programs. Knowing what kind of borrower you are and your financing goals will dictate who you seek loan approval from.
If you have a relatively straightforward application, you may look to a local bank first for financing. Most local banks have one set of loan programs with interest rates lower than using a mortgage broker. If you have an established relationship with your bank or have active accounts with them, they should be your first move. In some cases, they may be able to streamline your application or offer a discount on the interest rate. While there are many variables to a loan application, they should be able to give you some idea of what they can do when you present your credit score and debt-to-income ratio. The first question you should ask any local lender is if they have experience with investment loans. A lender may advertise a low interest rate or a free appraisal, but that may only be for an owner occupied loan. Before they run your credit and waste time on an application, find out if they close a large amount of investment loans. If not, you may be better served using a mortgage broker.
The mortgage broker profession was one of the hardest hit industries when the market collapsed last decade. Many of these brokers received a bad reputation for charging excessive fees, placing borrowers in short term loan products and using bait and switch tactics. In the past few years, the industry has undergone sweeping changes aimed at protecting borrowers and educating brokers. Currently mortgage brokers need to be licensed and pass annual continuing education classes. If you opt to use a broker in today’s market, you can be confident that they know what they are doing and there are caps on what fees they can charge. If you have shied away from a broker, it may be time for you to give them a second look.
A mortgage broker differs from a traditional lender in that a broker has access to numerous lenders and their programs. Instead of using just one lender guideline, they can pick and choose the best programs and rates for a specific borrower’s situation. Having multiple lenders to choose from will give you, as the borrower, options that you may not have had otherwise. Many lenders have rolled out slightly different niche products that cater to investors. This could mean putting 15% down as opposed to 20 or 25. It could mean using a greater percentage of rents received or using bank statements in lieu of pay-stubs. A mortgage broker can’t do every loan, but if your situation requires something out of the ordinary they are often your best bet in getting approved.
The biggest complaint that most borrowers have is not being kept abreast of what is going on during their loan. Regardless if you use a local lender or a mortgage broker, you should feel comfortable with whoever you are working with. They are competing for your business, not the other way around. During the application process, or while you are making exploratory phone calls, directly ask them if they have a system for making sure you are constantly updated. If they do not or if you aren’t comfortable, you should move on to someone else. There is nothing worse in the buying process than spending weeks waiting on an approval that never comes. In most cases, things can be corrected or you can save the deal if you are aware early enough. Regardless of what the news is, you need to know what is going on and work with someone that will tell you.
Using the right lender can open up options for your business that you may not have been aware of. Programs are constantly changing. Using the best lender can provide you with access to them as soon as they are available. You should spend as much time, if not more, on who you use for financing than any other step in the buying process.