NEWB: Talk to lenders first or find deal first?

Question

Hi. I'll be investing in a 2-4 unit building before the end of the year. If I decide to go at it myself, should I talk to a bank and see what type of loan/limit I can get before finding a property or should I bring the deal to a bank first?

Robin Simon · Answer

It's never too early in the process to start talking with will be a lenders and learning what the process will be and what different options are available.  Also, will be a great help in underwriting your deals as financing numbers such as rate, leverage, points have a huge effect!

Nick Belsky · Answer

@Kathy Utiss

If you have a signed lease with collected deposit when you close, then yes, you can count up to 75% of the rent towards your income (less the PITI).  House hackers have been doing this for years and it works well for many.

@Justin Pinder

Never too early to speak with lenders/brokers.  If going DSCR, we only look for proof of funds to cover the down payment and closing costs to qualify.  Some will pull credit, but I always wait until there's a live deal and estimate low on the FICO until then.  It's not the same pre-approval process like with conventional or agency.

Cheers!

Branden Yang · Answer

Whichever is easy. I've found a deal currently, but I'm struggling to get a partner. If I had a partner with a million dollars. I would easily turn that into 4-5 million dollars worth of assets. I don't, so I recommend getting a partner unless you can do a deal by yourself.

Alex Breshears · Answer

Hi Justin! As a private lender, I will tell you find the capital and their requirements and then find the deal for a smoother acquisition process. Also, start an account with a local community bank, get to know them and what they are looking for. Sometimes the best loan products on a larger scale can be found at these local community banks because they will hold the loans as an investment rather than try to sell them off on the secondary market.  It will also give you an idea of the loan terms they are looking for.  For example, if you are doing something like purchasing a stabilized triplex. It has paying tenants and no real major repairs needed, the bank may want 20% down and you are looking at a 25 year amortized loan of roughly X percent.  Knowing that upfront will help underwriting analysis as you are trying to evaluate cash flow, cash on cash returns, or any other metric you qualify an investment on.  Having a rough idea of what the debt terms will be will be ENORMOUSLY helpful when you do find that property because you can act fast because you know you have the financing in place and know your numbers.

Erik Browning · Answer

Yes, talk to a lender and ask them to give you scenarios based on your personal profile. Prove that you can qualify for yourself first. If you are coming up short on your ability to purchase, that's ok. At least you know where you stand and where you can make up the difference with a partner.

Justin, where are you located?

Justin Pinder · Answer

Thanks for the advice!

Kathy Utiss · Answer

I'm attempting to do new build on a fourplex. FHA has a decent program probably at  least a 620 score needed. Fourplex I'm trying to build is a million dollars. Each will be five bedroom three bath. I've been told that it would be at least 3.5% down which is $35 000. Probably at least 10,000 for closing costs and whatever other fees they tack on. And 3 months of reserves. My biggest question was if you're allowed to use prospective tenants first and last month and deposits to do such. I got told this is possible that I think I would probably just stick to the deposits. Going FHA you would have to live in one of the four units. But it's one way to get a free house by having other people pay for your housing. If you have a score of 685 or more I got a friend who can write the note at 6% for 80% amortized over 30 10-year interest only balloon. You don't have to live in any of the units.

NEWB: Talk to lenders first or find deal first?

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