First Time Homebuyer

[Dustin Moon]

I've been reading these amazing books put out by BiggerPockets and my goal is to start house hacking. As of right now my first step has been finding a lender to see how much I can even be approved for. I keep on reading from time and time again that I should visit multiple lenders to see if they are a good fit for what I want to do. So far I have talked to one local lender and started their prequalification process. Here are some questions that I have come up with so far.

1. Am I better off shopping around for local lenders only or should I reach out to big banks as well

2. Should I be getting pre approvals from every lender I come across 

3. What questions should I be asking or what key things am I looking for in a lender

[Anthony McEvoy]

Shop around or use a broker.

You don't want to get a pre-approval until you have an offer placed.  You do not want your pre-approval higher than your offer because otherwise they know you can go higher.

Understand the details of the loan... if it balloons, early payoff penalty, closing ability - how fast can a appraisal be completed, underwriting, etc.

[Jeremy Albert]

1. I'd say either shop around or gather a referral from a trusted source. One thing I like to do is make providers aware that if they take care of me then they will secure repeat business. If someone wants to sneak a $1000 fee in there to make a quick buck then good for them, then I know who not to work with moving forward. 

2. Anthony makes a decent point about not showing sellers what you can truly afford, but I don't think that is crucial. If you have a good lender you can simply ask them to adjust a pre-approval down to whatever you want as there is no risk associated with that. At the end of the day it's a piece of paper lol. Just make sure you don't get caught un-prepared on an offer because you were trying to play psychological games. As someone looking to owner-occupy I only see benefits in getting approved early. 

3. Ask about the fee structures and why they're there. There are some funky fees that get thrown in, some of which are negotiable.  Keep in mind that this is business. You attempting to get rock-bottom pricing may come at a larger cost.  

[Dustin Moon]

Ok good to know these things! I was under the impression that I had to get pre approved first.. I just joined my local REIA and I'll do some investigating there for sure.

I appreciate the advice guys!

[Ryan OBrien]

Quote from @Dustin Moon:

Ok good to know these things! I was under the impression that I had to get pre approved first.. I just joined my local REIA and I'll do some investigating there for sure.

I appreciate the advice guys!

 You will need a preapproval first. A local credit union is a good place to start, but a mortgage broker will be able to provide the most options. 

I would recommend working with a local realtor, and using their mortgage resource, who they trust to get you to thee closing table. 

Do you need a recommendation of a realtor for your Vancouver search? Are you planning to buy in Portland(lower property taxes? or Vancouver? 

[Dustin Moon]

I will take any recommendations you have and I plan on staying on the Washington side. 

[Ty Ash]

Hi @Dustin Moon!

I recommend using the find an investor friendly agent. Usually your agent will be able to guide you to lenders that are locally recognized and are experienced in the loans that you want to use to house hack. 

Here's my generic advice on house hacking as well. Super excited for you!

Keep/start learning! This can be done through Podcasts, Books, and Mentors you find by networking. Sounds like you're well on your way to doing all of these things.

I'd pick up a copy of Set for Life by Scott Trench as it has a good framework for financial independence, especially for a newer investor. Real Estate is just a part of your total financial picture so don't become too focused on just real estate. You'll want to learn more ways to increase your income now and in the future, keep your expenses low, and take the difference to invest into assets, real estate/business.

A house hack will probably be one of the best strategies for you to get started and take action while giving you a great return because of the low % down needed to get started. Once you get to this point, make sure to run your numbers for both while living in the house hack (lowering your living expense to less than what it would be to rent in your area) and post move out where you need to be at least break even after accounting for your monthly payment + maintenance, capex, vacancy, property management.

Here's a great resource right here on BP:

https://www.biggerpockets.com/real-estate-investing/house-hacking-strategy

Best of luck getting started! Here for you with any questions you have along the way!

[Drew Sygit]

It's more important to understand the process of HOW they qualify you!

Then you can hack at away at how to modify your income/debts to improve what you can get.

[Dustin Moon]

Quote from @Ty Ash:

Hi @Dustin Moon!

I recommend using the find an investor friendly agent. Usually your agent will be able to guide you to lenders that are locally recognized and are experienced in the loans that you want to use to house hack. 

Here's my generic advice on house hacking as well. Super excited for you!

Keep/start learning! This can be done through Podcasts, Books, and Mentors you find by networking. Sounds like you're well on your way to doing all of these things.

I'd pick up a copy of Set for Life by Scott Trench as it has a good framework for financial independence, especially for a newer investor. Real Estate is just a part of your total financial picture so don't become too focused on just real estate. You'll want to learn more ways to increase your income now and in the future, keep your expenses low, and take the difference to invest into assets, real estate/business.

A house hack will probably be one of the best strategies for you to get started and take action while giving you a great return because of the low % down needed to get started. Once you get to this point, make sure to run your numbers for both while living in the house hack (lowering your living expense to less than what it would be to rent in your area) and post move out where you need to be at least break even after accounting for your monthly payment + maintenance, capex, vacancy, property management.

Here's a great resource right here on BP:

https://www.biggerpockets.com/real-estate-investing/house-hacking-strategy

Best of luck getting started! Here for you with any questions you have along the way!

Thank you for the quality advice. I actually have been in contact with my financial advisor and will be meeting with him next week to talk over my portfolio. Just bought Set for Life. Seems like my reading list keeps getting bigger and bigger lol. 

What's the best way for me to find potential realtors/brokers who specialize in investment properties? I would take a stab at this and say recommendations are probably the best way?

[Marcus Auerbach]

@Dustin Moon start by finding a good agent: it's easy to find one, but hard to find a good one. You want someone who does more than 24 deals a year and also owns rental properties and can give you fist hand advice. A good agent will know most local lenders in town (plus contractors, inspectors, where to get a good lease, how to screen tenants etc) and can tell you which ones are good, because most are just average and some are really bad and screw up closings. Obviously you also want good rates and a loan product that fits your needs (most of our house hackers in Milwaukee use a 5% down conventional portfolio ARM loan with no PMI as opposed to an FHA with PMI for life and which is also not popular with sellers, because of their secondary inspection, especially on 100 year old duplxes..). By the way, you want a good lender AND a good loan officer - who you work with matters! You absolutely want to get your PA before looking at houses and it needs to be rock solid with all your documents reviewed, credit pulled and all income and assets verified. It's good for 4 months and easy to renew. And you want it to be as high as possible! In a competitive market you want to look like a strong buyer, that gives comfort to the seller. When I sit with sellers and present offers, not a single time a seller has said, let's counter back because they have a higher PA. But many times they are concerned about the buyers ability to pull it off. Good luck! House hacking is hands down the single best way you can get started in RE!

[Dustin Moon]

Quote from @Marcus Auerbach:

@Dustin Moon start by finding a good agent: it's easy to find one, but hard to find a good one. You want someone who does more than 24 deals a year and also owns rental properties and can give you fist hand advice. A good agent will know most local lenders in town (plus contractors, inspectors, where to get a good lease, how to screen tenants etc) and can tell you which ones are good, because most are just average and some are really bad and screw up closings. Obviously you also want good rates and a loan product that fits your needs (most of our house hackers in Milwaukee use a 5% down conventional portfolio ARM loan with no PMI as opposed to an FHA with PMI for life and which is also not popular with sellers, because of their secondary inspection, especially on 100 year old duplxes..). By the way, you want a good lender AND a good loan officer - who you work with matters! You absolutely want to get your PA before looking at houses and it needs to be rock solid with all your documents reviewed, credit pulled and all income and assets verified. It's good for 4 months and easy to renew. And you want it to be as high as possible! In a competitive market you want to look like a strong buyer, that gives comfort to the seller. When I sit with sellers and present offers, not a single time a seller has said, let's counter back because they have a higher PA. But many times they are concerned about the buyers ability to pull it off. Good luck! House hacking is hands down the single best way you can get started in RE!

So that actually leads me to my next question. I was first thinking about making an LLC but was not sure when I should establish one or how an LLC really functions in this scenario. For example: If I were to buy a fourplex, would I make an LLC for each unit or do I make one for the entire building including the one unit I'd be living under?

[Marcus Auerbach]

@Dustin Moon I would research the topic a bit more, a lot of people would agree that an LLC for residential properties is an overkill. For an LLC to hold up in the extremely rare case it has to it needs to be able to demonstrate that it is indeed an independent business with it's own books and bank accounts etc. And it also prevents you from getting a residential loan, which has usually better terms than a commercial loan. Make sure your building is in good repair, especially stairs, handrails, the electrical system etc. , you have a good lease (not something home made from some attorney) and if you feel that's not enough get an umbrella insurance on top of your regular liability insurance.

[Dustin Moon]

Quote from @Marcus Auerbach:

@Dustin Moon I would research the topic a bit more, a lot of people would agree that an LLC for residential properties is an overkill. For an LLC to hold up in the extremely rare case it has to it needs to be able to demonstrate that it is indeed an independent business with it's own books and bank accounts etc. And it also prevents you from getting a residential loan, which has usually better terms than a commercial loan. Make sure your building is in good repair, especially stairs, handrails, the electrical system etc. , you have a good lease (not something home made from some attorney) and if you feel that's not enough get an umbrella insurance on top of your regular liability insurance.

Ok thank you so much for the advice. I really appreciate the help! I'm sure I'll have more questions for this forum in the future. This place is really a good source to ask questions.

[Marla Dishongh]

Hi Dustin,

I suggest getting at least 3 rate quotes from a local lenders or your personal credit union if you belong to one. Honestly in my experience you will definitely need a preapproval to get an offer accepted. Also, you will feel better knowing what amount you can actually purchase. No sense making an offer on something that may be out of your range and would be heartbreak.

If you’re worried about dinging your credit score, typically when lenders are pulling your credit report for a mortgage, the credit reporting agencies do not ding your credit for pulling it multiple times. They know people shop around for rates.

Also, make sure you are completely upfront with all your debt and income and supply everything they need for verification.

Lastly, it’s important that any lender you choose should be able to answer all your questions in a way that you understand, don’t let them fast talk you and brush you off.

They should be able to explain which type of loan is right for you and why.

What the rate is and if it requires points to buy it down and options to buy down the rate. (The market has shifted and many sellers are offering to buy down the rate for the buyer, so negotiation is key during your due diligence time period.)

What down payment options you have? What the PMI will be depending on down payment?

Do you qualify for down payment assistance?

How long can you lock a rate?

What is the closing time frame?

Hope some of that helps and I'm happy to send over lender referrals if you like. Good luck!

[Jay Thomas]

Before you start looking for a home, there are a few things that you need to consider. First of all, you need to think about the type of residence that will serve your needs.

[Dustin Moon]

Quote from @Marla Dishongh:

Hi Dustin,

I suggest getting at least 3 rate quotes from a local lenders or your personal credit union if you belong to one. Honestly in my experience you will definitely need a preapproval to get an offer accepted. Also, you will feel better knowing what amount you can actually purchase. No sense making an offer on something that may be out of your range and would be heartbreak.

If you’re worried about dinging your credit score, typically when lenders are pulling your credit report for a mortgage, the credit reporting agencies do not ding your credit for pulling it multiple times. They know people shop around for rates.

Also, make sure you are completely upfront with all your debt and income and supply everything they need for verification.

Lastly, it’s important that any lender you choose should be able to answer all your questions in a way that you understand, don’t let them fast talk you and brush you off.

They should be able to explain which type of loan is right for you and why.

What the rate is and if it requires points to buy it down and options to buy down the rate. (The market has shifted and many sellers are offering to buy down the rate for the buyer, so negotiation is key during your due diligence time period.)

What down payment options you have? What the PMI will be depending on down payment?

Do you qualify for down payment assistance?

How long can you lock a rate?

What is the closing time frame?

Hope some of that helps and I'm happy to send over lender referrals if you like. Good luck!

 Ok thank you for this information. I just got in contact with two local lenders. I will definitely keep those questions in mind once I get my pre-approval. 

[James Dainard]

Quote from @Dustin Moon:

I've been reading these amazing books put out by BiggerPockets and my goal is to start house hacking. As of right now my first step has been finding a lender to see how much I can even be approved for. I keep on reading from time and time again that I should visit multiple lenders to see if they are a good fit for what I want to do. So far I have talked to one local lender and started their prequalification process. Here are some questions that I have come up with so far.

1. Am I better off shopping around for local lenders only or should I reach out to big banks as well

2. Should I be getting pre approvals from every lender I come across 

3. What questions should I be asking or what key things am I looking for in a lender

Hey Dustin,

Right now, you want to be reaching out to everyone you can to see if you can get a better rate or some more attractive terms.

You don't want preapprovals from every lender, you really only want a full preapproval from the lender that you choose to work with through the process. Getting multiple preapprovals will impact your credit score if they aren't within a 2-week timespan. Make sure you plan accordingly when you've picked a lender. Another thing that's helpful is getting fully underwritten and preapproved. This will make it so that you can get through your contract period faster if that's something you want.

Questions you might consider asking a lender:

How long have you been in lending?

What's your current loan volume?

How can I expect to communicate with you / how frequently will you contact me?

What rate do you suspect you'll be able to lock me in at if I'm looking to close on a property in the next 90days?

Does your company offer any portfolio loans, 2-1, or 3-2-1 buydowns?

Do you offer any lender credits towards closing costs?

Do you own any investment properties?

Have you helped other investors with the type of investment that I'm looking to purchase?

Hope that helps!

Bonus: ask your agents and network for recommendations on lender, who they like working with and why!

[Gregory Chadwell]

My previous life as a lender for 10 years  below are my asnwers to your questions.  

1. Am I better off shopping around for local lenders only or should I reach out to big banks 

No and some big lenders are a Pain to deal with and listing agents know that.as well (don't shop and have your credit pulled repeatedly hard pulls bring your credit score down and will have to be explained before closing with the final lender

2. Should I be getting pre approvals from every lender I come across 
No, see above, also i would shop a local well known credit union for rates and lower closing costs.

3. What questions should I be asking or what key things am I looking for in a lender   

Closing costs? Do you charge points? What is your origination and or application fee?  How long to close from start to finish?

Thanks and good luck!

Greg

[Dustin Moon]

Quote from @James Dainard:

Quote from @Dustin Moon:

I've been reading these amazing books put out by BiggerPockets and my goal is to start house hacking. As of right now my first step has been finding a lender to see how much I can even be approved for. I keep on reading from time and time again that I should visit multiple lenders to see if they are a good fit for what I want to do. So far I have talked to one local lender and started their prequalification process. Here are some questions that I have come up with so far.

1. Am I better off shopping around for local lenders only or should I reach out to big banks as well

2. Should I be getting pre approvals from every lender I come across 

3. What questions should I be asking or what key things am I looking for in a lender

Hey Dustin,

Right now, you want to be reaching out to everyone you can to see if you can get a better rate or some more attractive terms.

You don't want preapprovals from every lender, you really only want a full preapproval from the lender that you choose to work with through the process. Getting multiple preapprovals will impact your credit score if they aren't within a 2-week timespan. Make sure you plan accordingly when you've picked a lender. Another thing that's helpful is getting fully underwritten and preapproved. This will make it so that you can get through your contract period faster if that's something you want.

Questions you might consider asking a lender:

How long have you been in lending?

What's your current loan volume?

How can I expect to communicate with you / how frequently will you contact me?

What rate do you suspect you'll be able to lock me in at if I'm looking to close on a property in the next 90days?

Does your company offer any portfolio loans, 2-1, or 3-2-1 buydowns?

Do you offer any lender credits towards closing costs?

Do you own any investment properties?

Have you helped other investors with the type of investment that I'm looking to purchase?

Hope that helps!

Bonus: ask your agents and network for recommendations on lender, who they like working with and why!

Thank you, James! I appreciate your input.

[Nate Sanow]

A mentor once told me a decade ago to interview lenders and ask them why I should choose them.  I never did literally say that, but have carried that attitude.  I personally often say, treat finding a lender like dating.  Go on lots of dates before finding the one.  It is of course strictly a metaphor…but what I am saying is, certainly good, local lenders are worth being loyal to.  I am in the season of being really loyal and consistent with my go-to’s.  I do prefer local, you should at least try to find it, but I am not at all knocking out of state if they are knowledgeable about your area and wiling to talk to you often.  The trick with out of state lenders in my opinion and experience is often they do not care about reputation as they don’t have a Referal based marketing strategy, but an internet based lead generation platform.  Referal based lenders will always provide superior service innately due to the business model.  

[Dustin Moon]

Ok so I've found a lender, I've found an agent, and I've joined multiple investor groups in the area. I have been pre-qualified for loans and have been looking at multiple homes with my agent. I want to house hack by owning at least a duplex for my first home and I am down for seller financing. We have been searching for a few weeks and there are only a few on the market. Most either need a lot of sweat equity which kicks me out of my budget or move in ready and are too much for my budget.

I am currently renting an apartment and the lease ends in February. The new lease is projected to go up again and I can't justify the price so I really need to move out by the end of February. Time is closing in where I need to either find a place to buy or find a new rental to live in that is cheaper so I can build up my savings quicker.

My question to yall is... if and when February comes around do I bite the bullet and buy a cheap property, mobile home or a condo that is well in my budget and the monthly mortgage is no more than the rent I'm paying now and sell it when I have the cash to get into an investment property or do I continue renting and build my savings so I can put more down on an investment property. The estimated time for me to build up a good amount for a down payment and closing costs could be up to a year. 

I think my answer to this would be to continue renting until I can afford but I am reaching out for any advice 

[Angela W.]

You should definitely shop around. It took me a while to find the best loan. Not only are you looking for the rates, and benefits, but you want someone knowledgeable and calculate the principal, rate, and any of the benefits suits your needs. For instance, does the lender provide buy-down rates, second loan program (if you need it) or a lower down payment, etc.

Good luck

- Angela Walter, Texas Attorney

[Jewel B.]

Wow! So many great questions and answers here. I'll definitely be referring back to this. 

[Dustin Moon]

They do but the lowest rate I've got was at 5.97% with putting 3% down roughly 25k. I would be leveraging so much I won't be able to cashflow the properties I've looked at until 5yrs from now. Currently homes are north of 500k and rents are right around 1600-2100 in my area. Goal is to split the mortgage 50/50 the best I can and move out within 2 years to move onto the next property. If I could find a 3% loan or better... things would look way better.

I've also discussed doing a 2-1 buydown and the numbers may work for that