I Don't Know How to Make Offers Quickly

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I Don't Know How to Make Offers Quickly

Bryan Dumesnil
Jeanerette, LA · Member since 2018 · 30 posts · 14 votes

Hi everyone,

My wife and I have finally found a property that we would like to flip but I am having a hard time figuring out how to put in an offer quickly. Our realtor says that we need to have proof of funds in order to put in an offer. The asking price of the house is very inexpensive at $37,000.00. Although that is not much money, we do not have that amount in our bank accounts at this time. We plan on getting a construction loan to fund the flip but we don't want to go through all of the trouble of applying and getting a credit check on our credit history and then not be able to get the property due to not being able to act fast enough. I always hear on the podcast that as an investor you need to put in multiple offers, but I don't understand how someone can do that without having the proof of funds. I can pretty much guarantee that we would be able to get the loan as our credit history and credit scores are great but like I said, I do not want to apply for the loan if we can't get the property. Does anyone have any advice on getting through this process? Any help would be greatly appreciated!!

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Account Closed
Investor · Lexington, KY · Member since 2017 · 8 posts · 11 votes
7y

@Bryan Dumesnil I became my own "Hard Money Lender". 

  • I called my bank and increased my credit card and cash advance limits to the max. - $30k
  • Opened a checking line of credit - $5k
  • Opened a HELOC - $100k
  • Opened CCs at Home Depot and Lowes that offer 0% interest for certain purchases

I'll pay 13%-14% interest on that cash advanced (5.5% for the HELOC), but I won't pay it to a HML and won't pay any points. Hope this is helpful!

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  • Benjamin Piecenski
    Lender · Columbus, OH · Member since 2019 · 114 posts · 61 votes
    7y

    Hello!  Have you looked into hard money?  That's the best route to be able to move quickly with financing.  The traditional mortgage process (at least at my firm) takes about 21-30 days, but hard money allows you to move quickly.  They may look at your credit score, but they take a lot more consideration into seeing if the numbers work with the property.

    0Reply
  • Stephanie MedellinBusiness Member
    Mortgage Broker · CA · Member since 2014 · 1k+ posts · 642 votes
    7y

    @Bryan Dumesnil  This isn't the answer you want to hear, but you're just going to have to apply to get pre-approved and go through a credit check if you want to present offers with a pre-approval letter!  If you don't get this property you will be ready for the next one.  Sellers want to know you can close.  If you're looking at properties in the $30,000 - $40,000 price range, you may want to apply for a renovation loan to fund the repairs.  You may need that extra amount to meet a minimum loan amount for many lenders.

    If your scores are great, you should have nothing to worry about regarding a credit inquiry.  If you are in the high 700s it makes absolutely no difference if your score drops a few points.  

    Depending on your state's standard real estate contract, it may or may not be a good idea to submit multiple offers simultaneously if you have no intention of buying more than one property.

    [email protected]
    Stephanie Medellin, Loan Factory58 Reviews
    WebsiteView Page
    4Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    7y

    You Have to get preapproved.....period.  3-5 point temporary drop in your credit score means nothing.

    1Reply
  • Bryan Dumesnil
    OP
    Jeanerette, LA · Member since 2018 · 30 posts · 14 votes
    7y

    @Benjamin Piecenski

    I've always wanted to stay away from hard money loans since they are fairly expensive and I'm not really familiar with them. I have just recently started doing some research on them though so I can get a better understanding. I know they are a good tool to have when an investor needs money quickly so I may end up going that route. 

    @Stephanie Medellin

    I actually don't mind getting approved for the loan before putting in the offer but I was always under the impression that you could worry about getting the funding after the offer has been accepted. Like I said, I've always heard that it is good practice to put in multiple offers but I guess you actually need to have the funding from your lender first before doing that. I think that we are probably not going to be able to act quick enough to get this property.

    We are planning on getting a renovation loan that would cover the purchase of the home and the rehab costs. If I'm not mistaken, a lender would need to get details on the property such as ARV and the rehab estimate to consider giving you the loan. If that is true, how would I be able to get the loan approved before putting in an offer if I'm not sure which property I am going to buy? It seems that you would not be able to act quickly enough before someone with cash could scoop up the property.

    0Reply
  • Kevin M Finley
    Developer · Kenosha, WI · Member since 2017 · 141 posts · 91 votes
    7y

    Talk to a HML and let them know your plans. They can kick you a preapproval letter easily.

    0Reply
  • Michael Temple
    Rental Property Investor · Toledo, OH · Member since 2017 · 257 posts · 215 votes
    7y

    @Bryan Dumesnil You may want to take the time to meet some local mortgage people and get set up with them in advance of putting in offers. Once you do that and these lenders know you and have already looked at your credit etc. then most of them will just give you pre-approval letters as you need them without pulling credit every time you request one.

    Check around with different people. I have 2 I work with now that give me the letters as I need them and the only updating I have to do is each year I give them an updated tax return and they typically pull a fresh credit report at the same time. However, throughout the year I can just put my offers in and submit letters and I don't have to really do anything until I get an accepted offer. Once that happens you will typically have to go through the full deal again (assuming you actually want to close on it), but at that point, you are where you need to be anyway. 

    The reason I said check around is that not all mortgage departments work the same way. Some will only "pre-approve" you for 90 days at a time and will want to pull full credit every 90 days. This is the wrong approach in this business where you make a lot more offers than ever get approved. I generally just skip these banks.

    3Reply
  • Bryan Dumesnil
    OP
    Jeanerette, LA · Member since 2018 · 30 posts · 14 votes
    7y

    @Kevin M Finley

    Yes, I believe I may need to get in touch with one at least to figure out the process. If the numbers work on the flip then I guess it doesn't really matter how expensive they are.

    @Michael Temple

    That is a great piece of advice. A friend of mine said that he does this but I honestly didn't believe him. I guess I just feel I'm probably not eligible for something like that since I'm so new to investing in real estate.

    0Reply
  • Anthony Rosa
    Rental Property Investor · New York City · Member since 2019 · 703 posts · 538 votes
    7y

    Sellers need to know that you are serious.  Get a pre-approval letter from a lender. When your offer is accepted and you come to an agreement with the terms/paperwork, you apply for the loan.   Sellers won't wait for you to get your stuff together, you need to be prepared.

    Keep in mind that not all lenders give mortgages under $75K.

    1Reply
  • Bryan Dumesnil
    OP
    Jeanerette, LA · Member since 2018 · 30 posts · 14 votes
    7y

    So I believe I was fairly confused about how the process works. I didn't think that a pre-approval letter would suffice as proof of funds for an offer but my realtor is telling me that it would. I was under the impression that I would need to apply for the loan first and get approved before I could submit an offer. I imagine I could probably get a pre-approval letter within a day which makes submitting an offer much easier. This all makes so much more sense now.

    0Reply
  • Account Closed
    Investor · Lexington, KY · Member since 2017 · 8 posts · 11 votes
    7y

    @Bryan Dumesnil I became my own "Hard Money Lender". 

    • I called my bank and increased my credit card and cash advance limits to the max. - $30k
    • Opened a checking line of credit - $5k
    • Opened a HELOC - $100k
    • Opened CCs at Home Depot and Lowes that offer 0% interest for certain purchases

    I'll pay 13%-14% interest on that cash advanced (5.5% for the HELOC), but I won't pay it to a HML and won't pay any points. Hope this is helpful!

    5Reply
  • Michael Temple
    Rental Property Investor · Toledo, OH · Member since 2017 · 257 posts · 215 votes
    7y

    @Anthony Rosa very good point! I have also run into this, sadly by simply not knowing. I had a deal I was trying to close last year and my bank wanted me to put 15% down, which was no issue, but by doing so my loan went below 75K and the pricing went off the charts. They wanted 8% interest and 3 points at closing! I think loan sharks have better terms.

    He explained that by law the bank can't refuse to do these loans, but because they are not very profitable for the bank they set such extremely ridiculous terms that nobody in their right mind would do it.

    I even explained to my banker that by him making me put the 15% down was triggering this issue. If they let me put less down then the loan would have been above their minimum 75K, but he said they couldn't do that. Talk about a catch 22.

    Now, as soon as I talk to potential lenders I ask the following questions...

    1. Do you have minimum loan amounts, if so what are they?

    2. Do you only require that I put 15% down, even if it is a rental property?

    3. What are the terms if I am putting 15% down vs. a higher amount like 20 or 25%. Sometimes the fees, points, etc. skyrocket even though technically they will do it, just not at terms that make sense.

    4. Do you have any other requirements if this is my X number investment property, i.e. extra reserves I need on hand, certain income level, certain debt/income ratio, etc. I want to make sure there aren't any nasty surprises buried in the "oh I forgot to mention" section of the deal.

    Keep in mind that having cash on hand, low debt and great credit scores aren't insulation to any of these. I am finding banks to be some of my most difficult steps to deal with on investing. They have so many terms, requirements, fees, etc. and they are ALWAYS changing so even if you think you have them down today they may be different tomorrow.

    3Reply
  • Bryan Dumesnil
    OP
    Jeanerette, LA · Member since 2018 · 30 posts · 14 votes
    7y

    I'm loving the advice here everyone! Thank you guys so much. It really helps.

    0Reply
  • Anthony Rosa
    Rental Property Investor · New York City · Member since 2019 · 703 posts · 538 votes
    7y

    @Michael Temple,  Another route you can take is use some of your own cash and the rest on a credit card. Maybe you can do 12 months 0 interest on the credit card. 

    0Reply
  • Michael Temple
    Rental Property Investor · Toledo, OH · Member since 2017 · 257 posts · 215 votes
    7y

    @Anthony Rosa I have looked into the credit card idea before and under certain circumstances that might work, but only with the right promo. Most promos are for balance transfer so you need 2 cards, one to buy and one to transfer it to when you are done to get the 12 or 18 months interest-free. Keep in mind most of these still have a balance transfer fee of 1 to 2% you will get hit with when you do it. I used this method in non-real estate ways for years and it works like a charm. Purchase what I need on one card and flip the balance to another for 12 months interest-free. Then when that promo expires I flip it to another card. After I do this once or twice I usually have the balance pretty close to zero and just pay it off.

    WARNING: When I do this I am ALWAYS paying the balance down as I go each month. I NEVER keep piling up debt higher and higher and moving it over and over again without constantly reducing it. Not doing that is a recipe for disaster. Make sure you are always paying it down and have a couple of exit strategies.

    Now if you are trying this for cash money instead of purchases you will probably run into a problem right from the beginning. All the credit card companies I have ever dealt with start charging interest on cash from day 1 so there is no promo if you want cash. Now, what I haven't tried before and maybe I will have to look into is my first example, but instead of buying something I take cash and then immediately transfer that "balance" to a new card and get the promo so I only pay interest on that cash I borrowed for 15 days or so, just long enough to do a balance transfer.

    @Account Closed I am assuming on that HELOC that is on your own primary residence. I have never found a bank that will open one of these on a rental property and god only knows I have tried. I even tried to get a commercial line of credit on one of my rentals that was free and clear and the bank wouldn't do that either. What I did do that was successful (accidentally) is I did a house hack so to speak. I bought a house and lived in it for 15 years. During that time I opened up a HELOC and when I moved I turned it into a rental. The HELOC is still active and works, but the bank *could* shut it down if they ever wanted to as my credit line is now on a rental. They never have, but I suppose they could and when it expires in 2028 I am sure they won't renew it. If I had been smarter I would have expanded the line BEFORE I bought a new house and moved and done the same thing so I would have a big credit line on a rental property. Anyone have a time machine handy :)

    1Reply
  • Account Closed
    Investor · Lexington, KY · Member since 2017 · 8 posts · 11 votes
    7y

    @Michael Temple Yep! HELOC is on my first house that became my first rental.

    0Reply
  • Michael Temple
    Rental Property Investor · Toledo, OH · Member since 2017 · 257 posts · 215 votes
    7y

    @Account Closed Very smart. Now about that time machine :)

    1Reply
  • Matt M.
    Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
    7y

    My realtor won’t show new clients anything until they have spoken to a mortgage broker/have a pre-approval letter or have proof of funds.

    Look into a small local bank. My guy just did a $60k loan for me, and closing on another property Friday where the loan is $48k. I agree with another comment that loans under $75k aren’t easy to find.

    0Reply
  • Patrick McGrath
    Rental Property Investor · Westminster, MD · Member since 2014 · 165 posts · 221 votes
    7y

    @Bryan Dumesnil

    Pre-approval is easy and once you are approved you are good to go. I text my lender a address and purchase price and he sends me a letter in less than 15 minutes.

    They are also offer investor loans where you can finance the rehab as well. 15% down on the total loan for SF homes.

    0Reply
  • Stephanie MedellinBusiness Member
    Mortgage Broker · CA · Member since 2014 · 1k+ posts · 642 votes
    7y
    Originally posted by @Bryan Dumesnil:

    @Benjamin Piecenski

    I've always wanted to stay away from hard money loans since they are fairly expensive and I'm not really familiar with them. I have just recently started doing some research on them though so I can get a better understanding. I know they are a good tool to have when an investor needs money quickly so I may end up going that route. 

    @Stephanie Medellin

    I actually don't mind getting approved for the loan before putting in the offer but I was always under the impression that you could worry about getting the funding after the offer has been accepted. Like I said, I've always heard that it is good practice to put in multiple offers but I guess you actually need to have the funding from your lender first before doing that. I think that we are probably not going to be able to act quick enough to get this property.

    We are planning on getting a renovation loan that would cover the purchase of the home and the rehab costs. If I'm not mistaken, a lender would need to get details on the property such as ARV and the rehab estimate to consider giving you the loan. If that is true, how would I be able to get the loan approved before putting in an offer if I'm not sure which property I am going to buy? It seems that you would not be able to act quickly enough before someone with cash could scoop up the property.

    I think you already clarified things based on a post below, but you’re not getting the whole loan approved before making an offer.  When you get pre-approved, the lender is looking at your finances and determining whether you can qualify for the amount you need.  

    The scope of work for the property and estimates will be handled during escrow, although you should have a rough idea of what needs to be done and what it will cost.  

    A lender will never fully approve your financing before you’re under contract for a property.  Like you mentioned, they need to review the rehab estimate and order an appraisal for the the value of the house with all of the repairs that will be done.

    [email protected]
    Stephanie Medellin, Loan Factory58 Reviews
    WebsiteView Page
    1Reply
  • Bryan Dumesnil
    OP
    Jeanerette, LA · Member since 2018 · 30 posts · 14 votes
    7y

    Awesome! This helps out so much. I was definitely making it more complicated than it needed to be. 

    0Reply
  • Michael Temple
    Rental Property Investor · Toledo, OH · Member since 2017 · 257 posts · 215 votes
    7y

    @Patrick McGrath is that a traditional lender you are dealing with our a type of hard money lender / private money? I have never found a bank that will do the rehab money as well. I have found some hard money or crowdsourcing lending outlets that do this though. Just curious.

    0Reply
  • Jerry Sanders
    Real Estate Agent · Pleasanton, TX · Member since 2015 · 10 posts · 3 votes
    7y

    How would you show proof of pre approval if you were to use a private money loan? I know you could through a actual private money lending company but what about if you were getting a loan from friends or family how would you show your pre approval? Just curious.

    0Reply
  • Josh C.Pro Member
    Property Manager · Indianapolis, IN · Member since 2010 · 1k+ posts · 1k+ votes
    7y

    If you put down a 10k EM deposit that isn't contingent on anything they wouldn't care about your POF. Then get your financing set up.

    0Reply
  • Mitch Atkins
    Rental Property Investor · Gibsonville, NC · Member since 2016 · 18 posts · 2 votes
    7y

    @Charlie A. This is an interesting idea of loaning yourself money. Is your plan to get a longer term loan from a bank after the initial period?

    1Reply
  • Patrick McGrath
    Rental Property Investor · Westminster, MD · Member since 2014 · 165 posts · 221 votes
    7y

    @Michael Temple

    SWBC Mortgage - Traditional lending - I have completed 3 purchases and 3 refi’s with the same lender.

    1Reply
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