Advice on searching for lenders and how credit can be affected

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Advice on searching for lenders and how credit can be affected

Jerry Villa
Houston, TX · Member since 2018 · 44 posts · 5 votes

I've heard on biggerpockets podcast hosts suggest you to keep on searching for Credit solutions, even after one bank has declined your application, so i wanted to know how does shopping around affect your credit? Do you guys have some tips on how to best shop around without affecting your credit too much? Thanks

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Alex BekezaBusiness Member
Lender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
7y

@Jerry Villa I hear horror stories all the time when I'm one of many mortgage brokers/lenders an investor is calling around to shop rates on.  People take several hard pulls while shopping and then have their score devastated when it comes time to actually begin the loan process. 

9/10 times I do not have the borrower's credit pulled until we are submitting a loan.  In terms of generating quotes I ask that the borrower supply either a copy of a recent report or some sort of other validation of their score like a credit karma report.  As long as we both have the understanding that the terms I'm quoting are based on this presumed score and will change accordingly with that score then I don't see any reason to issue a hard pull before we are ready to really pull the trigger. or like @Tom S. said I will go ahead and pull the credit if I have a firm belief that I'll be the only one doing so. 

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  • Tom S.
    Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
    7y

    @Jerry Villa  Typically if you do a number of credit pulls in about a 2 week period, it doesn't affect your credit too much.  You can also use a mortgage broker that does one pull and then shops it around to different lenders.

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  • Etai Gil
    Lender · Miami, FL · Member since 2019 · 42 posts · 12 votes
    7y

    Hey Jerry,

    Most banks and even credit unions use the same guidelines to qualify someone. 2 years employment, strong income, great credit, low DTI, reserves, 2 years taxes etc. The reason they all use the same rules is because they sell the loans later to Fannie and Freddie. The only true difference between the big banks is the customer service and speed of the loan, even the interest rate is usually within an eighth of a percentage or so.

    You need to analyze why you got denied. If it was any of the things I mentioned above, then unfortunately all the other banks will give you the same answer. It wouldn't make sense to continue shopping at that point. You will just lower your credit score trying to get approved. 

    I know of another lender that doesn't ask too many questions when it comes to income and liabilities, however they do require a stronger down payment and good credit. Even their rates are not too far off the banks.

    Hope this helps.

    Feel free to message me if you have any questions!

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  • Jerry Villa
    OP
    Houston, TX · Member since 2018 · 44 posts · 5 votes
    7y

    @Etai Gil thanks for the response. I should have clarified more, I wasn’t denied or wasn’t starting applications but you hear Brandon on BP keep talking about not accepting a no and keep going till you find a yes with lending. Sometimes he mentions the larger national banks don’t try as hard to really qualify someone because they have a unique income source (investors) or that bank doesn’t do loans under a certain house value (maybe the neighborhood is lower value and a local community credit union might).

    I just realized maybe another idea they were espousing was about finding creating ways to fund a project, including hard money lenders, partners, syndication, etc when traditional mortgages are not available to you....

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  • Jerry Villa
    OP
    Houston, TX · Member since 2018 · 44 posts · 5 votes
    7y

    @Tom S. Yea I heard about this. Would you do the shopping around yourself or do the mortgage broker route? Based on the other response here, if you get denied from one bank, it doesn’t make sense to keep going to other banks since they use the same criteria. What do you think?

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  • Tom S.
    Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
    7y

    @Jerry Villa  It depends a lot on your project, which you really didn't specify.  If shopping for a conventional loan for a primary residence, I would use a mortgage broker. As Etai mentions above, those loans most likely will be sold to the government and have about the same guidelines.

    If shopping for a rehab loan on an investment property I plan to keep, I would shop to individual local banks.  The reason why one might deny me and another would approve me could be specific to the property.  For example, too much work required or out of the lending range may make one bank to say "no" while others say "yes".  Note for me this wouldn't necessary result in a credit pull; I could walk into a bank and discuss the property before even starting the paperwork process.

    If fix and flip, HML might be better, and again, I would shop this to specific lenders, as they each have their own criteria.

    Hope that helps,

    - Tom

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  • Mike Burkett
    Lender · Colorado Springs, CO · Member since 2018 · 241 posts · 98 votes
    7y

    @Jerry Villa  What do you need the money for?

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  • Jerry Villa
    OP
    Houston, TX · Member since 2018 · 44 posts · 5 votes
    7y

    Hey Tom, I should have specified more.... this would not be for a primary residence but more along the lines of rehab/brrrr property so traditional mortgage/bank might not be the best option I'm seeing. I'll definitely go to local financial institutions for sure. The part where you said you dont need to get your credit pulled, how far do you talk with the bank before doing an application, you're obviously not getting pre-approved yet in those situations correct? Are you sharing with them the numbers on the project to see if it makes sense for them before doing an application?

    Mike, this project in particular is a property that I'm rehabbing and would like to refinance out the AVR once finished. 

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  • Mike Burkett
    Lender · Colorado Springs, CO · Member since 2018 · 241 posts · 98 votes
    7y

    @Jerry Villa  If you will use the @ sign plus the user's name, they will get notified when you respond.  Otherwise, I don't know that you responded.  Just a tip.

    Lenders want to pull your credit because it automatically uploads your debts. They use those debts and your income to calculate debt to income ratio. If you are confident your credit is good, you can calculate your own debt to income to see if you would qualify. PITI (Principle, Interest, Taxes, Insurance)/monthly income needs to be less than 36%. PITI+other debt/monthly income needs to be less than 45% (approximately). You meet those hurdles and you have some cash reserves, you should qualify. Ask a broker they formula they use to calculate the ratios for the rental property then you don't have to have them pull your credit until you are ready to pull the trigger.

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  • Jerry Villa
    OP
    Houston, TX · Member since 2018 · 44 posts · 5 votes
    7y

    @Mike Burkett appreciate that tip buddy... I find traditional lending institutions (AKA Chase bank and the like) dont seem to be friendly to investors who have 5+yrs of steady and growing income from rentals (airbnb, leases, self employed, all submitted to IRS). I was told smaller or local institutions might be more open to work with those individuals. Would you say agree more or less to that?

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  • Tom S.
    Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
    7y

    @Jerry Villa  regarding your question of how long I talk to bank before applying, typically I'll share numbers: the property, expected purchase and rehab, other info like my appropriate credit score and rehab history.  Then if it seems like a good fit, I'll then formally apply.

    You're right in your above post, I had no luck at all with larger national banks like Chase and BofA.

    1Reply
  • Mike Burkett
    Lender · Colorado Springs, CO · Member since 2018 · 241 posts · 98 votes
    7y

    @Jerry Villa  Lending institutions like consistent recurring documented income.  They like W2 income.  When you have multiple sources of self employed income, it falls outside their box.  You probably better off going with lenders that only provide loans to investors. 

    1Reply
  • Alex BekezaBusiness Member
    Lender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
    7y

    @Jerry Villa I hear horror stories all the time when I'm one of many mortgage brokers/lenders an investor is calling around to shop rates on.  People take several hard pulls while shopping and then have their score devastated when it comes time to actually begin the loan process. 

    9/10 times I do not have the borrower's credit pulled until we are submitting a loan.  In terms of generating quotes I ask that the borrower supply either a copy of a recent report or some sort of other validation of their score like a credit karma report.  As long as we both have the understanding that the terms I'm quoting are based on this presumed score and will change accordingly with that score then I don't see any reason to issue a hard pull before we are ready to really pull the trigger. or like @Tom S. said I will go ahead and pull the credit if I have a firm belief that I'll be the only one doing so. 

    [email protected]818-606-8823
    Investor Property Loan5306 Reviews
    WebsiteView Page
    3Reply
  • Jerry Villa
    OP
    Houston, TX · Member since 2018 · 44 posts · 5 votes
    7y

    @Alex Bekeza that credit karma approach is a good idea. I know that score is not as accurate as an official credit score pull, but its gets you an idea of your credit health. Its clear when you're being an investor and leading in your own financial wealth building, listening to the institutions that advertise on mainstream tv is probably not a message for us. They are reaching out to most W2 income earners like @Mike Burkett outlined above.... 

    Can we apply this loosely to other services like home security services, home warranty services, etc? This last part might be for another thread but thanks for the help. I know for sure, don't go to chase for non-primary mortgage needs. 

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