What is your strategy for selecting a lender?

Question

I am working on my first deal in St. Louis and seeking guidance on how to best select a lender for my first investment property.  I have ~$20K for down payment and thinking I can purchase a property between $100K-$150K using conventional loan, with 10%-20% down.  First off, is that realistic?  I own my current residence so have that on my credit report. My initial strategy is to buy and hold.  Should I use aggregators like better.com or lending tree on BP to compare quotes, or ask around for referrals?  Thanks in advance for any input you can provide.

Joe Facenda · Answer

Agree with @John Warren. Use your Realtor for recommendations.  Personally, I am biased toward local direct lenders.  These are loan officers who work in your town and underwrite locally.  They are people you can build a relationship with.  For some of the larger banks or online groups you are building a relationship with a company, not a person.

While every dollar matters, I would not suggest you decide to go with one lender or another for an 1/8 or even a 1/4 of a rate difference.  In your price range, that will amount to just a few dollars a month.  (For a $100,000 loan the difference of a quarter point is about $14 per month and 1/8 is$7 per month.)  The service you receive and the confidence that you will settle and settle on time is more critical.  And the ability to talk to someone past the transaction as you contemplate other moves is quite important. For a professional I can consult with, I am glad to pay $7 to $14 per month.  That said, you can always ask the person you like best to match the lowest quote and often they will.

Also when comparing lenders, look at fees as well as rates.

Hope that helps.

Rumi Velazquez · Answer

@Joe Facenda  This is super helpful, thanks for your post and advice! This helps cement my thinking around balancing relationship with cost -- you’re absolutely right about percentage points not making a big difference for my initial budget and that I will want to build a relationship with people and not a company.  Thanks again.

John Warren · Answer

@Rumi Velazquez I would start by reaching out to your realtor. I have a great lender that I refer to my clients who understands the 2-4 unit space. I also think it makes sense to check local meetups for lenders. You can also ask other investors you know for referrals. Your lender is an integral part of your team, and you should spend some time building a relationship so you have that component ready when the right deal comes along.

Rumi Velazquez · Answer

@John Warren Makes sense, and that helps, thank you!