Should I get pre-qualified by multiple lenders?

Question

My wife and I plan to buy our first small MF property out of state (we're in CA) sometime this year. We are just beginning the process of getting pre-qualified for a particular state and have had preliminary conversations with several potential lenders, both institutional and private, commercial, but we haven't yet submitted our documents to anyone. We don't have a property in mind but want to have a lender ready to go when we find something on which to make an offer.

Is there wisdom in getting pre-qualified (but not yet credit checked) with a number of lenders to see who would finance us and give us the best terms, or should be just focus on one at a time?

Thanks

Is there wisdom in getting pre-qualified (but not yet credit checked) with a number of lenders to see who would finance us and give us the best terms, or should be just focus on one at a time?

Thanks

Chris Mason · Answer

@Paul OBryan,

Please excuse me while I get very very frank for a moment. This is going to be a "what you need to hear, not what you want to hear" type post.

I'm pretty sure on the route you're on, you're going to end up being some brand new loan officer's very first transaction. Someone that doesn't know any better, and doesn't really know what they are doing.

Everyone that's been doing this longer than 10 minutes knows that the person who refuses to have their credit run and/or submit paperwork has a profile: they have a 450 FICO score, 0% down and can't even afford the appraisal, can't find their tax returns, lied about their income, and/or is otherwise a waste of time.

Typically this is someone that just loves spending time entertaining the fantasy of doing something they aren't actually in a position to do (hence trying to hide that fact). There is literally no other reason for it. I run my own credit every 3 months or so at work and have a FICO north of 800, so it's not like mortgage credit inquiries trash your credit or anything, so there must be some other reason someone is trying to hide their credit and/or other paperwork.

I'd suggest taking yourself out of that bucket where only noob/idiot lenders will bother, and putting yourself in the good bucket where you end up with a competent professional local to where you are buying real estate will actually be able to help you. :) God knows what misinformation you've already gotten while barking up this particular tree, given the sorts that'll bother barking back...

Last last week, an agent referred someone to me. Someone that she had shown a half dozen homes to, hours and hours of time, based on seeing a bank statement showing down payment funds. That person literally laughed when I talked about getting her qualified to actually buy a home. She said it was a horrible time to buy a house because she's a grand wizard expert at timing the market. She's been through a half dozen agents since 2015 or so, never with any intent to actually buy a home, just having agents show her home after home after home because she enjoys it. I immediately called that agent and told her what was up, so she could stop wasting her time, and let some noob agent waste their time instead.

Russell Brazil · Answer

Thanks for the tag Chris

The cheapest lender, or at least the cheapest quoted is not necessarily the best, and Id say is often not the best. If the market is a competitive one, like mine is, what is more important is having the lender who can and will close the deal seamlessly, and on time. Just this past week one of my clients got a deal specifically because of the lender. In fact we used @Upen Patel as the lender. We had gone in with a fully underwritten loan commitment, which added a lot more weight to our offer, and the fact that Ive closed plenty of deals with this lender and could attest to their ability actually landed us the property over another potential buyer who offered a higher price with a contingency to sell their previous property. If my client had been using the cheapest lender he could have found, which I typically like to call chop shop internet lenders...he simply would not have gotten the property.

Now if it is a less competitive market that is forgiving about lenders screwing up, and will constantly grant extensions to close....maybe having a good lender doesnt matter. But it certainly does in the competitive markets. Even in non competitive situations it can still put you at a disadvantage

I closed a transaction a couple weeks ago, this was a non competitive situation, and my client shopped around and found the cheapest lender he could. A few days after we went under contract the loan officer told us they would need an additional week and a half to close. So now I was at a disadvantage after negotiationg the home inspection, because I couldnt push too hard because I was going to have to get the sell side to agree to extend the contract. So where if I had been using a lender who simply could have closed on time (and I asked for like a 6 week closing when 30 days is standard for my market, we had to extend to 7 weeks) now I was castrated when trying to negotiate the home inspection. Instead of being able to ask for 6, 7,8 repairs from a motivated seller....I think I could only realistically reach for 2 since I would have to ask them to be gracious enough to grant us an extension to close.

It is really interesting that your clients all seem to think that they know better, and they think you are overpaying for your loans, when Im closing 2 or 3 deals a month. They should ask themselves why am I using the same 2 or 3 lenders over and over and over again. Im using them because they know how to close the deal, and close it without problems. Trying to save a few hundred dollars in closing costs is just absurd if it is going to cost you the deal altogether, or cost you potentially thousands of dollars of leverage in home inspection negotiations.

I will say though that Ive had a couple transactions in the past year where using a bad professional helped. This one loan officer left the transfer taxes on the closing disclosure. Me and the title attorney both asked him, are you sure you are good with the CD. He said he was....so the bank had to eat the transfer taxes. That saved my client thousands of dollars. I had another deal where the client found their own home inspector, who cost about half what a normal one would. The client wasnt present at the home inspection...this guy went through the property in 20 minutes, and noted 3 problems. Even a newly built luxuyry home is going to have a couple dozen things of inconsequential value listed...this guy listed 3 things in 20 minutes. Made closing the deal much easier for me, but my client never got any sense if the property was ok or not. Thats fine, his choice to use substandard services.

Paul OBryan · Answer

@Chris Mason @Upen Patel Hey Chris and Upen, thanks for your thoughtful responses. It's amazing how many different opinions there are around some of these issues, and well, really around everything. For example, a mentor of mine says that mortgage lenders pulling your credit report will not ding your credit score but then the lender at US Bank I spoke to says it will. Some one tells me to be wary of getting my credit pulled multiple times in a short period and then Chris Mason says "I run my own credit every 3 months or so at work and have a FICO north of 800, so it's not like mortgage credit inquiries trash your credit or anything". The lender at US Bank tells me that he will check all my docs to prequalify me but will hold off running my credit score until I'm ready to make an offer, this making me think other lenders will too.

So I'm a looking to buy my first property out of state and wondering how to get it financed. I read some books, listen to podcasts, ask my agent. My agent tells me no local lenders in this state (OH) will touch out of state investors. He suggests US Bank. So I talk with them and get an application. Then I go on Bigger Pockets to see if anyone knows any lenders who might help me. Several people respond and I contact them and/or their referrals. Now I've got a handful of potential lenders (who seem pretty solid by my first review) with whom I can try to get pre-qualified, but I'm wondering if I should get PQ'd with all of them... or just one at a time. So I post a query on the BP forum and here it is.

Now by my query one might think I have a really sucky credit score and am desperately looking for anyone to lend me money. But this is not the case. I have an excellent credit score (high 700's from two; 800+ from the third) and I am looking for a solid lender. I just have not gone down this road before (buying real estate) and I want to do it the best way I can, and I'm a little in the dark about how to do it. So I am looking for advice. That's it. Thank you guys for your advice.

Chris Mason · Answer

"Pre qualified without a credit check" holds no value, except inasmuch that a bunch of stated income / stated credit prequal letters is probably cheaper than purchasing toilet paper if you want a money saving strategy for toiletries.

Of the lenders you interviewed for the job that are local to the state where you wish to invest, hire the most competent/responsive/knowledgeable, and get a full doc preapproval that'll show real estate agents that you're a dead serious carpetbagger, and not yet another out of state tire kicker and time waster from California.

The listing agent will pick up on that competence/responsiveness/etc when they call the phone numbers on the various preapproval letters of competing offers to interview (just like you did, but a 5 minute version) the lenders in order pick the one that's going to do the job of financing this transaction, and advise their client accordingly.

Paul OBryan · Answer

@Jared Bouzek Thanks for your insight. Just to be clear, the US Bank lender didn't tell me not to let other lenders pull my credit. He merely said HE would not pull my credit until we have something we're interested in.

From what you and others have said it sounds like I should not worry about a few credit pulls. Thank you.

Also, I value your words on big box lenders. I am going to focus first on the smaller lenders with whom I've been in communication.

Cheers!

Jared Bouzek · Answer

@Paul OBryan Well when you think about it, the loan officer from US Bank has a vested interest in telling you to not let anybody else pull your credit because they won't be able to do a complete qualification on you without it. You'll probably quickly find that working with somebody besides US Bank is going to be in your best interest. Multiple mortgage inquiries within a short time period should have no impact on your credit score. At most I've seen a few points of difference with multiple inquiries across 2-3 months. If you truly are a high 700s FICO, it would take something pretty dramatic to drive your score down to the point where it even mattered.

I'm surprised that an agent would recommend you work with one of the large banks. Agents where I work in a highly competitive market avoid the big box boys like the plague unless they're just inexperienced and don't know any better. They're especially terrible at working with investors. As a first-timer, find a loan officer who knows REI inside and out, offers competitive rates, and communicates well. They will save you a world of pain.

Upen Patel · Answer

@Paul OBryan I would certainly review the documents. But there is a difference between reviewing the docs and giving a pre-approval. As you stated, there are many aspects that can impact an approval, and the info on your credit report is a critical part of that. For instance, the debt shown on the credit report will impact the DTI.

Again, what you need is a competent mortgage banker, with no internal overlays and options to portfolio loans in case the conventional loans don't work.

Paul OBryan · Answer

I am reposting some of what I wrote earlier because I did not know how the "@name" worked.

@Chris Mason Thanks for your response. I got what you're saying about picking one lender with which to go through the full pre-approval process (including pulling credit score), but can I also go through the non-credit score pre-approval process with other potential lenders as well?

The reason I'm asking is this will be my first time and I want to make sure I am able to get pre-approved whether it be with a conventional or portfolio lender. Maybe one or the other won't approve me and I want to have a back up or back ups. I know my credit score will ultimately play a big role, but I'm not worried about it because I know it's good, ie, upwards of 800. However, I want to also make sure my other docs show me as qualified for a loan. Does that make sense?

@Russell Brazil solid advice about not going with the "cheapest" quote or lender. The market I'm looking in is tightening and becoming more a sellers market...

@Harjeet Bhatti Thank you. You are saying, just start with one, the one that makes the most sense.

@Upen Patel Thanks for your response. Are you saying that when a borrower sends in his/her docs you don't do any kind of pre-qualifying analysis that would not include a credit check? I spoke with a lender the other day who said he will look at everything I provide before I find a property, but only once I find something and am ready to pull the trigger will he pull my credit report.

What I am trying to avoid is getting my credit report pulled multiple times. So say I go through the pre-qual process and get my credit report pulled with one lender but that lender ultimately says he will not fund the project because, for example, I don't have enough experience or my income/debt ratio isn't to his liking. Then I go to another lender and they want to pre-qual with a credit check as well... now I have two credit reports pulled, thus dinging my credit score, when the lenders could have discovered those (non-credit report) reasons for denying me without dinging my score. Does that make sense? I'm trying to avoid having my credit score dinged unnecessarily.

Thank you!

Upen Patel · Answer

@Russell Brazil Thanks for the mention. Always a pleasure working with you. I am glad we got that under contract. Onward to closing.

@Paul OBryan Non-credit pre-approval is not worth anything. In fact, I will not provide ANY form of pre-approval without looking through your credit and all supporting docs. As a lender when I issue a pre-approval, I am staking my reputation on the line. Reputation is hard to build and easy to shatter. So as a borrower, you have to decide what type of a reputation a lender has and try to work with one that cares about it. The online chop shops that @Russell Brazil mentioned don't really give a damn. For the lender, the worst case is they have to deny the loan. Its your money and purchase on the line. So choose wisely.

Good luck.

Harjeet Bhatti · Answer

You have done your search already, pick the right one for pre-qualification purpose and later on compare rate and closing cost with other lenders. When you have everything ready like type of property, county , state, purchase price shop for rates.

Should I get pre-qualified by multiple lenders?

Should I get pre-qualified by multiple lenders?

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