Private Lending & Conventional Mortgage Advice

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Pre-approval for multi-family properties

Posted Jun 22 2022, 11:03

Hi everyone!  I am looking at purchasing 2 multi-family properties and they would be my first investment properties.   I have 20% down and excellent credit and am looking for conventional mortgages.  

When buying an investment property, do you get (or have to get) pre approval prior to making an offer?  Or can I make an offer and arrange the financing after? 

Thanks in advance for any advice! 

Evansville, Indiana

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Cooper Bryer
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  • Boston, MA
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Cooper Bryer
  • Lender
  • Boston, MA
Replied Jun 22 2022, 11:13

Hi Megan,

First, congratulations on getting ready to dive into multi-family investing. Wishing you success and prosperity!

You will need to have pre-approval before making an offer. Your real estate agent will likely request a pre-approval letter from you before making an offer so they can be confident in your ability to achieve financing given an accepted offer.

It is best practice to have the pre-approval done as you begin to search for properties so that you are aware of the costs and max purchase price that you are eligible for.

The process should be rather quick and easy once you find a lender. Wish I could help there but I'm not licensed in Indiana!

Best of luck in your search!!

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Kevin Luttrell#5 Private Lending & Conventional Mortgage Advice Contributor
  • Lender
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Kevin Luttrell#5 Private Lending & Conventional Mortgage Advice Contributor
  • Lender
  • Orange County, CA
Replied Jun 22 2022, 11:17

There's no law that says you must have a pre-approval prior to making an offer, but 99% of sellers and listing agents will not take your offer seriously if you're not pre-approved first. That should be your first step. 

It will also be beneficial for you to speak with a lender to learn the different requirements for your loan type, rate estimates, etc. For example, if you want conventional financing, you'll need at least 25% down for a 2-4 unit property. Not 20%. 

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Scott Wolf
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Scott Wolf
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Replied Jun 22 2022, 12:17

@Megan Hornyak, when you say MF, do you mean less than 5 units, or larger than 5 units.  Also, will you be occupying one of them?

Based on your post, it looks like these will be purely investment properties. In that case, pre-approval is typically not necessary. Still, I would form a relationship with a mortgage broker with who you can run a deal by to get an idea of the financing that will be available to you.

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Chris Mason
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Chris Mason
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ModeratorReplied Jun 22 2022, 13:05
Quote from @Megan Hornyak:

Hi everyone!  I am looking at purchasing 2 multi-family properties and they would be my first investment properties.   I have 20% down and excellent credit and am looking for conventional mortgages.  

When buying an investment property, do you get (or have to get) pre approval prior to making an offer?  Or can I make an offer and arrange the financing after? 

Thanks in advance for any advice! 


 2-4 unit is residential real estate, so the same norms apply. The expectation will be that you're preapproved prior to even asking questions about the properties, since otherwise you're statistically likely to be a tire kicker and time waster.

5+ unit is commercial, different norms apply there. In that space, preapproval does not exist. A letter of intent detailing why you feel you'd be able to get a commercial mortgage, and proof of funds, is the norm. 

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Dave Skow
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  • Seattle, WA
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Dave Skow
  • Lender
  • Seattle, WA
Replied Jun 22 2022, 16:08

@Megan Hornyak...definitely  get fully pre approved  ( as the sellers and listing agents ) will expect  a pre approval letter  with your offer  2) depnding on the  size of the MF - your down payment might need to be  more than 20% 

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Nick Belsky
  • Residential and Commercial Broker
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Nick Belsky
  • Residential and Commercial Broker
Replied Jun 23 2022, 07:41

@Megan Hornyak

20% down on conventional investments may be a hard find due to lender overlays.  Most want 25% down with conventional.  Also, multifamily is 2-4 for conventional, you go 5 or more and conventional and agency won't touch them.  Non-QM may offer you some advantages that Conventional can't (less docs, less down payment, etc...) but also comes with some baggage (Pre-Payment Penalties, higher rates, etc...).  For many, Non-QM is a far superior product, for many, it is not.  All depends on your perspective as an investor.

Cheers!

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Miranda Holland
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Miranda Holland
  • Lender
  • Cortland, NY
Replied Jun 23 2022, 08:24

Technically, no you don't need a pre-approval. You can always get a proof of funds letter to make your offer. However, conventional mortgages tend to take a long time.  You don't want to get into a situation where you get your offer accepted and you run out of time looking for financing from a traditional bank.  So yes, find a bank that will pre-approve you first 

However, with private money/hard money, things are sort of reversed. As long as the deal is good, it will likely get funded regardless of imperfect credit 

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Paul Crosby II
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  • Columbus
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Paul Crosby II
  • Lender
  • Columbus
Replied Jun 23 2022, 10:17

Hi Meghan!

I do have an Indiana license and would tell you that getting preapproved will really help you even if it isnt required by either agent.

The preapproval is valuable to you  because since rates are rising, you want to make sure the deal is still makes sense when factoring in financing and the closing costs associated with it.

The previous posts were correct in that you will need to make sure that you have the proper assets and expectations for buying two properties. You will also need to make sure they are zoned and parceled properly if you are pursuing conventional financing as most residential mortgage lenders have issues with mixed use property, non residential highest and best use etc.


Im sure someone will have already mentioned this but from a cost perspective it would be best to house hack one of them using FHA as you can put less down, lower your interest rate and get a HELOC on the property 4-6months after closing. This would allow you the most financial flexibility and keep more of your cash liquid as we wait to see if more supply hits the market.

Congratulations on being able to secure not one, but two properties! Looking forward to seeing your post on what the results are and how the deal was structured