Consider some of these tips for a painless investment property mortgage process:
#1 – Get a pre-approval letter
Before you go out looking for your next investment property, always obtain a pre-approval letter from a lender first. This way, if you find a property you want to make an offer on, you can act quickly, and make the offer with your pre-approval in hand. This always makes your offer stronger and more appealing to any seller.
#2 – Work with only one lender
For best results, work with only one lender/loan officer over and over again. You’ll find each succeeding mortgage loan application will get smoother and smoother.
#3 – Make your lender your “partner”
Tell the loan officer or mortgage broker what you’re trying to accomplish with your next investment property acquisition. Make them your de facto partner. You’ll find that in short order, you will develop a nice, quick “shorthand” relationship with them. And they will be able to help cut down on your overall paperwork, as well as speed up the loan approval process for you. In addition, they can foresee any potential underwriting problems from the bank’s perspective, and either offer you tips on how to correct these issues, or advise you to not waste your time applying for a loan at this time.
#4 – Know the score – your score
Always know your credit score. Periodically check it, and double check it with each new investment property you acquire. Consider it like taking your financial pulse.
#5 – Keep good books
Get in the habit of keeping excellent bookkeeping on all of your investment properties. Think about your next mortgage application, and what the bank will require on it. It’s best to constantly be updating your income statements for each property, so you won’t have to scramble to look up records when you want to move quickly to place a full loan application. Keep in mind that your mortgage loan officer can help you with how best to present it on any new mortgage paperwork.
Also remember that banks traditionally will not use 100% of your overall rent roll when considering your income. Most will ascribe only 75% of your gross income before expenses for each of your rental properties. They do this to lessen their overall risk in deciding whether to offer you their mortgage.
Work with a lender that does it’s own in-house loan processing and underwriting. Your application may be moved along faster. But more importantly, any problems that arise as to accuracy of information or grey areas can be dealt with more directly by your loan officer when it’s all handled in the same company.
#7 – Understand the mortgage process
After your loan officer takes your completed application, it will go to loan processing. As the next step in the approval process. Loan processors are the nuts and bolts operations of any bank. Processors are responsible for checking and re-checking for accuracy all statements and numbers you put down on your mortgage application. Does your actual income match up with your stated income? Are the value of your assets truly what you claim? Are your debts exactly what you’ve represented on your application?
The amount of checking work done for any application is voluminous, and must be done thoroughly and accurately to insure the bank’s decision to offer you credit is based on reality. (Yes, today’s version of lender fact-checking is a far cry from what occurred during the heady years just before the great financial meltdown, beginning in 2008.)
#8 – And understand the underwriter’s role
Once your loan has gone through loan processing, it next goes to underwriting for an ultimate decision as to whether to make the loan to you or not. A loan underwriter’s chief concern is keeping the bank safe. Unlike your mortgage loan officer, they are not paid on commission, so they have no financial interest in whether the bank makes the loan to you or not.
Their main goal is to ensure safety for the bank’s lending position in all it’s mortgages, while at the same time allowing the bank to grow by approving relatively safe loans. (Of course, there is no such thing as a risk-free loan from the perspective of the lender. But the loan underwriter tries to straddle the opposing objectives of total safety and growing the bank’s business.)
#9 – Avoid a disapproval ahead of time
Once you’ve gotten an approval by loan underwriting, the bank’s attorney is given an all-clear to close, and a closing date can be set up with all the attorneys involved in the transaction. If you get denied the loan, always ascertain why. (Of course, if you’ve been using the same loan officer on many occasions, the likelihood of being denied is greatly reduced – they won’t let you waste your time applying if they think there’s going to be a problem.)
These days, the biggest issue facing investors is an appraisal on the subject property that comes in too low. It’s always best to make sure your lender is using a local appraiser before placing your application, and doing your appraisal. Now more than ever, appraising is an art that demands an extreme knowledge of the local area where a property is being appraised, in order to get truly accurate appraisal valuations.
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