AH BANKS! Pardon My French - Part 1
If this is the new norm, then our buy & hold strategy is going to be a gold mine. Even with continued lower rates, banks and lending institutions are continuing to make it it more difficult to do business with them.
In the past 3 years we've used two different lending institutions - one to fund the purchase of our primary residence in Pensacola and one for a conventional loan on an long-term rental investment property in Gulf Breeze. Now that we are well past the closing on each property, the emotional piece has subsided from my not so pleasant experience and I've realized that the lending institution process is just a nightmare. It amazes me how little a loan officer actually knows about underwriting and how little they can speak to the process & knowledge of their underwriting counterparts. It's not their fault, it just the process sucks and their caught up in the mix dealing with guys like me who want answers. Whether purchasing a primary residence or rental investment in Pensacola, this post is to help you understand what we've experienced so your expectations can be set. If your experience is better, then I'd love to hear who you used in the comment section below. Let's dive into the details:
Our Primary Residence Purchase:
-- Down Payment of 20% (check)
-- Credit Score of high 700s, low 800s (check)
-- National Bank with a large local presence and really good interest rates (check)
Why the 20% down? First off, there are lending programs out there that don't require 20% down. We wanted to avoid what's called Private Mortgage Insurance or PMI and banks will waive or discontinue PMI once there is an 80% loan-to-value ratio, hence the 20% down. There are numerous sites found via Google Magic that discuss PMI and I encourage you to do some research - it can save you thousands of dollars in the long run. Also, if you don't have the 20% down payment, there are creative ways to come up with it - and no, I'm not encouraging you to do anything illegal...there are legal creative ways. :)
Is an 800 credit score required? No, but your credit score does help determine your overall loan rate. The higher your credit score the better. If your credit score isn't ideal right now, just know it will take several years of a consistent watch to improve it. I'm not an expert, but here's how we did it: How We Increased Our Credit Rating
Where the "fun" begins... we were pre-approved by our chosen lender, found our ideal Pensacola property, went under contract, and moved onto the financing "fun". Now every lender (credit union, large national bank, small local bank, mortgage broker - I've dealt with them all) has their own set of due diligence. I get it. They're about to loan a significant amount of money to a person they've had no record with and they want to grab a better understanding of who they're doing business with - makes perfect sense. For this purchase, the initial 11 page document detailed out everything we needed to provide them. Not a big deal. It took a few hours for me to grab and submit all the documentation. "That's it. We should be good, I'll send this off to underwriting." News to my ears, but certainly became a little frustrating after the 3rd & 4th time I heard it. By the fifth round of them coming back asking for more info I had had it. I exclaimed, "ABSOLUTELY NOT! Either you have what you need to process this loan or we are moving on!" Well, at the risk of really pissing my wife off and losing the home we were now emotionally committed to, that tactic work. I didn't provide another single piece of documentation and we closed in the next couple of weeks.
I hate dealing with middle men or gate keepers, and in this case, the Loan Originator or Loan Officer. They provide no value to me and appear to do nothing but protect the underwriters. You can't have underwriters talking to clients!? What was an emotional event at the time, I now see as a broken process. It was a broken process during this purchase in 2013 and is still a broken process on our most recent Gulf Breeze rental property purchase in 2016. That horror story is coming in Part 2 which I'll link back here later.