First time loan advice. Best deal?

Question

Ok, so I'm a noob looking to purchase my first house. The house I'm looking at is listed at $35K. It looks to be a very good deal. So now I'm going to go out and get pre approved for a loan. I would like some advice. What can I expect when shopping for a loan? I have a 700+ credit score, $20K in the bank, and two jobs. Should I try to get the bank to finance 100%? Should I try for a FHA loan? Should I put up a 20% down payment?

How can I get the best rate, and what is the best overall deal in a loan?

This will be a property I will be turning into a rental. And the loan I want is a 30 year fixed.

Will I be better off with US bank who I bank with, or will I be better off going with a small local bank?

Need advice!! Thanks guys!!

Michael Seutin · Answer

I only have 2and1/2 yrs experience as a real estate investor, so I am not an expert yet.  
But I can tell you that if I can pay 40k for a property that will rent for $700/month, I would be more than happy, it's a great ratio.  
Now if I have to pay cash for the house then it's not that exciting anymore because what makes my day is leveraging my money.  
I heard that it's a lot more difficult these days to get the banks to give you a loan for the rehab.  
I would also like to know the best way to approach such an investment as far as financing because I am also interested in similar cheap houses that need rehad to rent and hold them.

Brett O · Answer

Here is the house I'm looking at.

It is listed at $35,000. It needs about $10,000 of rehab. It will rent for $700 per month after rehab.

I think I can get an offer of $30,000 accepted by the seller. If I do get accepted for 30K on the house will a bank loan me 40K so I can fix the house up?

And finally, will my 40K investment be worth it pulling in $700 per month in rent?

Nice looking house huh...  :mrgreen:

Brett O · Answer

Another quick question, do I have to be pre approved for the loan before I make my offer?

Brett O · Answer

Yes, It is a REO. So a conventional bank loan is the only way I know to go.

Robert Jenkins · Answer

FHA is probably out of the picture if it's an investment.  Is there a reason you're financing through the bank to begin with? Is it a REO or Short Sale? If it's owner occupied can you try asking them to carry the financing first? It can save you prepayment penalties, quicker close, more favorable(aka leanient) terms. You can save money getting into it and still make it an investment.

The strongest pre approval is from a direct lender (aka BofA, Chase, Wells, Local bank) rather then a mortgage broker, but if u build a relationship with one of those guys they will be your best friend.

Never accept the lenders terms it's NEGOTIABLE.

The best rate depends on your length of hold and goal of the property. If it's a 5 year hold and no more you can look into interest only loans for cash flow or shorter (10-15yr) fixed rate loans for smaller int rates to build up equity if u think the appreciation will be there.

Scott M. · Answer

100% Financing is a thing of the past â€“ you can count on putting 20% down for a primary or 25% down for an investment in most cases â€“ might you find someone who can do you better â€“ sure â€“ but that generally comes with itâ€™s own costs.

As for what you can expect â€“ you can expect everyone to tell you that youâ€™re a dream byer and they can get your loan done.  Actions are different from words though.  Try to go to your local REIA for referrals â€“ find others doing what your doing in your area and ask who is a good bank to work with.

I would go visit your local banks / credit unions and / or mortgage bankers in the area first before going to a mortgage broker â€“ while the rates may be the same having that connection is worth a ton down the road and the process can often be streamlined.

Lastly â€“ expect it to take 2x as long as they say it should and you will be fine.  Will it take 2x longer?  Prob. Not so you might be happily surprised but if you expect it to close when they say it will you will be unhappy.