Multiple SFR financing

[Kevin S.]

Hi everyone, New to RE investing and I need all the advise for how, what, when and where of financing.  Mortgage broker vs Lender.  What to look for, what to ask?  How to choose them?  Do I pick only one or pick more than one agent/lender and have 2 source of lending available?  I plan to buy my first property and as soon as it's rented out I plan to buy the second one and then third.  Do lender finance second property within months of financing the first?  Is it better to stay with one lender for both properties?  Any reason or advantage to use the second lender for next one?  Pros and cons of both.  If I choose 2 best broker/lender I assume they both will run my credit.  How much will that affect my credit score.  Is it even a good idea to work with more than one broker/lender?  No two broker/lender financing are exactly alike (spoke to 3 lenders so far with different answers).  Do all lender run credit check on all 3 credit bureau?  I was told by one that he only use Experian.  The second lender told me he run all three credit agencies(Equifax, Trans union and Experian).  Who is right? Which is better?  In today's market it's hard to cash flow with  20% down.  Does it make sense if it require more than 25% down to make it work?  I am told if I can put up the difference of negative cash flow, it's better to put up the monthly cash to break even and put 20% down than to put 25-30% down to be positive cash flow.  Reason is the difference of 5-10% is better used for down payment of another property since it adds up when there are multiple properties.  I know the list of questions is long.  I can use all the advise I can get.  Thanks in advance.  

[Erik Estrada]

Quote from @Kevin S.:

Quote from @Michael Thach:

Quote from @Kevin S.:

Hi everyone, New to RE investing and I need all the advise for how, what, when and where of financing.  Mortgage broker vs Lender.  What to look for, what to ask?  How to choose them?  Do I pick only one or pick more than one agent/lender and have 2 source of lending available?  I plan to buy my first property and as soon as it's rented out I plan to buy the second one and then third.  Do lender finance second property within months of financing the first?  Is it better to stay with one lender for both properties?  Any reason or advantage to use the second lender for next one?  Pros and cons of both.  If I choose 2 best broker/lender I assume they both will run my credit.  How much will that affect my credit score.  Is it even a good idea to work with more than one broker/lender?  No two broker/lender financing are exactly alike (spoke to 3 lenders so far with different answers).  Do all lender run credit check on all 3 credit bureau?  I was told by one that he only use Experian.  The second lender told me he run all three credit agencies(Equifax, Trans union and Experian).  Who is right? Which is better?  In today's market it's hard to cash flow with  20% down.  Does it make sense if it require more than 25% down to make it work?  I am told if I can put up the difference of negative cash flow, it's better to put up the monthly cash to break even and put 20% down than to put 25-30% down to be positive cash flow.  Reason is the difference of 5-10% is better used for down payment of another property since it adds up when there are multiple properties.  I know the list of questions is long.  I can use all the advise I can get.  Thanks in advance.  

 Would be helpful if your questions are more structured but I notice you made some homework and your ideas in some areas are correct. 

0. The idea to use a low down-payment as possible to save the money for other properties is correct when you want to control as much property value as possible. 10% appreciation just make more on 5 properties with 20% down than with one property being fully paid off.

As you also notice, nowadays high interest - high home prices and quite high rents are not best to cashflow and many cities in the United States are not cash-flowing but more appreciating. 

1. You can ask several lenders for the first property. Rates, Fees and procedure won't differ much if you are using an income based loan. Means the lender is checking your income. Whoever you choose, you need to qualify on their criteria, debt to income ratio, credit-score, employment history, citizenship ect. 

2. 2nd, 3rd property and so on will not qualify like your first property. The income of the rent will not be accounted as your income. Lenders want to see 1 year or even 2 years of rental income before they take rental income into consideration as your income. Even when they do, they only consider 75% of the rental income as income they can count into the debt to income ratio. Therefore many people will not qualify for another property because the debt to income ratio is to high. 

Solution is to switch gears and get investment loans which are not based on your income but based on the income of the properties. Those loans are called DSCR , but there are many other loans tailored for investors. There are bank statement loans, interest only , bridge loans... all kind of loans. But you need to find a specialized lender for this.

3. Your questions about hard pull on credit score.... this is part of the game, you will suffer a small dip because of the hard pull. But overall the more you owe, the more you able to pay and the more loans you have, the higher your score can go. If you have a 780 score but only a car loan of 20k, your credit score will plummet to 680 if you get a home loan of 300k. But if you already owe 3million and got a 780 score , you score will plummet only to 750 if you add another 300k into your portfolio. So don't be so fixate on the score itself.

 Thank you Michael.  Appreciate your input. 

1.  Do you pick a mortgage Broker or Lender?  Reason for one over the other.

2.  How do you pick your broker/lender?

2.  Any advantage getting pre-approved with more than one lender?

3.  Do they require credit check with only one credit agency or all three?  I have been told different by different lender.

3.  Is it true that credit score do not get affected if multiple lenders do credit check within 45 days?   Thanks.

 Choosing a broker over a direct lender depends on various factors: 

1. Would you like a peace of mind knowing that your deal is prescreened and structured according to the lender's guidelines? 

2. Do you want to avoid multiple credit inquiries? 

3. Do you want a person that is on top of your file? (Brokers are only paid at closing)

4. Do you have limited reserves, sub optimal credit, and may require multiple exceptions on your loan? 

If all if these answers are Yes, go with a broker. 

If you have a strong FICO, strong assets, and pretty experienced, going direct could make sense if you develop a strong lending relationship. 

I would say work with both. Broker's come in handy on deals that have been turned down by most of your lending partners.