Buy Cheap House Just To Create Lender Relationship Who Offers Favorable Terms

[Nick Edgington]

Hi everyone,

I found a lender that lends 30 year fixed with only 10% down and waive PMI on 1-4 unit INVESTMENT PROPERTIES. I believe they hold the loan in house which is why they can offer such favorable terms.

The issue I am having is I am a newbie and they are being strict on how much they will lend me because of no experience as a landlord even though I have 800 credit and make a high salary with a low debt to income ratio. They will not even consider the future income in their underwriting of the actual investment property. 

Bottom line, should I buy a cheap property in a not so great area with the money they will lend just to get my foot in the door with the lender with the amount i have been preapproved for? The amount I would have to put down is peanuts and the monthly mortgage/taxes/insurance would also be very easy for me to cover even if both the tenants stopped paying rent on day 1. I would also cash flow very nicely right away but like I said the area is probably a D-class area and I do not think there will be much appreciation.

My thought process is if I do a loan with them, I can gain trust and they will be more lenient in the future because I will then have "experience." A lender that offers 10% down and waives PMI on investment properties up to 4 units that wont be owner occupied is unheard of which is why I am so concerned with establishing this relationship with what they are willing to loan me. I have another lender that is way less strict and would loan me pretty much whatever but will be more traditional with down payments of 15-20% on single families and 25% on 2-4 units.

What do you think I should do? And thank you for any advice anyone can provide in advance.

[Account Closed]

Quote from @Nick Edgington:

Hi everyone,

I found a lender that lends 30 year fixed with only 10% down and waive PMI on 1-4 unit INVESTMENT PROPERTIES. I believe they hold the loan in house which is why they can offer such favorable terms.

The issue I am having is I am a newbie and they are being strict on how much they will lend me because of no experience as a landlord even though I have 800 credit and make a high salary with a low debt to income ratio. They will not even consider the future income in their underwriting of the actual investment property. 

Bottom line, should I buy a cheap property in a not so great area with the money they will lend just to get my foot in the door with the lender with the amount i have been preapproved for? The amount I would have to put down is peanuts and the monthly mortgage/taxes/insurance would also be very easy for me to cover even if both the tenants stopped paying rent on day 1. I would also cash flow very nicely right away but like I said the area is probably a D-class area and I do not think there will be much appreciation.

My thought process is if I do a loan with them, I can gain trust and they will be more lenient in the future because I will then have "experience." A lender that offers 10% down and waives PMI on investment properties up to 4 units that wont be owner occupied is unheard of which is why I am so concerned with establishing this relationship with what they are willing to loan me. I have another lender that is way less strict and would loan me pretty much whatever but will be more traditional with down payments of 15-20% on single families and 25% on 2-4 units.

What do you think I should do? And thank you for any advice anyone can provide in advance.

Lenders change their conditions and go out of business all the time. I wouldn't buy a bad deal just to try to impress a lender. They are going to look at the deal and if they think you made a bad choice you are hurting your cause. The lender thinks in his mind "would I do this deal" and if they think "no", that's worse for you. It may be that you just brought them a bad deal and they don't want to do the deal.