Prequalified for 250K mortgage, but...

13 Replies

I got pre-qualified for an investment property (SFH) in Idaho for 250K, but now I can only get a HELOC on my primary residence for 48K, which isn't enough to fund the down payment.

The original HELOC was for 100K, which would have helped cover taxes and insurance and getting this whole thing started. First investment property. But, as the banker explained, because I am pre-qualfied, the bank is counting this like I already have a property that I am paying the mortgage on. And I haven't even identified a property! In fact, not headed to Idaho for another couple of weeks.

Eek. Rookie here. Any thoughts on a solution or do I need to wait and start over?

Many thanks.

Maron Faulkner 

@Maron Faulkner

Are you saying that the bank decreased your HELOC because you are considering purchasing investment properties?

I personally wouldn't communicate that to the bank. You don't have a property even in contract at this point and may not for some time. The new property would have rental income coming in and help your DTI's which I am sure they are not taking that into consideration. Take things one step at a time and don't get debt counted against you, that isn't even in place yet.

You may have to look somewhere else for the HELOC. I would recommend not giving a reason for the line of credit.

Right? I wouldn't have said a word but they saw that my credit scores had been pulled recently and asked what it was for. Wasn't expecting the question, or maybe I would've done HELOC first, mortgage pre-approval second.

But I agree, who knows if and when I will even purchase anything in the near future anyway? Or how much it will be. It's crazy.

Thanks for weighing in, not sure how to avoid the issue.


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@Maron Faulkner Yes, sounds like a dilemma. You could try to get a heloc with a different bank. Alternatively, there are some local credit unions that will let you do a 10% down payment on a portfolio loan so your $48k would be enough on a $250k purchase. Do you know what areas of Idaho you are interested in? PM me if you would like some lender contacts. And if you are looking to buy in Eastern Idaho I can help you with that as well. best of luck to you!

@Maron Faulkner Have you considered talking to another bank/lender? When I try to find financing in a new place, I look up every small to midsize bank/credit union in the region. I make a new excel spreadsheet to keep track of them and call every single one and ask them some questions. Some I find out don't do what I need. Others can work better than what I was expecting. Banks can vary significantly in what they can offer so give that a shot. Also, banks/credit unions aren't the only ones who lend.  

@Jace Holt - hey Jace, thanks for the reply - and good suggestions. I am checking into a couple of other options - a credit union and my mortgage guy here in Oregon to pick his brain. Have appointments (via the phone at least) for tomorrow. I like your methodical approach - it reminds me of when I interviewed adoption agencies when we were adopting our son! I am curious as to the questions you ask and how many. I think I am a bit too new to come up with great questions, at least right now. But I can at least start brainstorming.

Are you in Idaho Falls or elsewhere in E. Idaho?

From what I understand from your comment, the only reason they are giving you less on your help is because you are already pre-qualified? If you were to just talk to another bank then get the HELOC from them, might be a different situation, but doesn't hurt to try other approaches.

I just sent you a message also

Thanks, Eric. I sent you a PM. Chase asked why my credit had been pulled earlier in the month, and so I told them, inadvertently shoting myself in the foot. Oh well, good lesson, I figured my first property would involve a (ahem) learning curve...

@Maron Faulkner For starters, I normally look for commercial or multifamily loans. You said you are looking for SFR, but I'll give you my process. I'm sure you'll be doing commercial loans as well before too long!

When calling the banks, I start by asking who I can speak with about my type of projects. In a normal bank, it's the loan officer. Commercial loan officers are usually pretty casual and most don't answer the phone the first time. They usually come in later in the day, take lunch for about 2 hours, and leave by 3 or 4 so I normally try to call around 10-11AM or 2-3PM their time. Preferably the 10AM to 11AM slot. That gives me the best odds of reaching them. I make a note of their response time because nothing is worse than having a property under contract and having a lender who isn't answering their phone or isn't on top of things. Once I get an answer or call back, I ask them and then record their personal office number or cell, whichever they prefer, so I don't have to go through the phone maze next time I want to talk to them. 

Once I'm in touch with the right person, I tell them what I'm working on or looking for and ask them if their bank has an appetite for it. A big tip is to ask them what products they are heavy on (this means too many in their portfolio which means they want to diversify and loan on other things) such as multi family, new construction, storage units, etc. This can give you an idea of how willing to get your project done they are. I ask if they are pushing more for reserves or for loans right now. This lets you know how to negotiate with them when the loan goes to the board. At this point, most will then tell you they want you to have a banking relationship where you set up a personal bank account or run your rents through them. This is all negotiable, but it certainly helps the loan approval board.

General questions I ask are:

What size is your bank

What LTV do you require?

What DSCR do you require?

How long does it take to get a loan done and how does your process work? 

Is there a threshold such as 1 million dollars or 5 million where the loan gets elevated to another board?

Do you underwrite the loan yourself?

If you are searching for a particular vendor such as a contractor, this is a great chance to ask a local immersed in the market who likely deals with contractors. Without asking, I have even gotten referrals of people who want to invest in my type of projects. 

Yes, I live in the IF area. I'm working on a few projects here and some out of state. 

Jace, this is amazing. Thank you for sharing.I am laughing about the bankers' workday, sounds like pretty reasonable hours they keep. I am going to save this for future (hopefully) deals too - of course, when I first spoke to Chase, our conversation was nothing like this, but I am getting smarter.

There is a lot in here, including getting their direct phone number so you don't have to wade through the voice mail menus all the time. And the DSCR, is that basically how much the investment brings in versus how much the mortgage and taxes are?

You could write a book for beginning commercial investors - this is really clear.

Thanks again for taking the time to explain.

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@Maron Faulkner Glad it helps! When talking to the bank about a residential loan, it usually feels more like working with a checkout clerk at the store. The process is more transactional. There is a lot of box checking. Everything is very systematized. Commercial feels more like working with a floor salesman but less pushy. Things aren't set in stone, everything feels negotiable, and you get to work based on relationships. You can ask for things and offer things. I've had multiple commercial loan officers tell me they can't stand doing home mortgages. They feel like they are doing "real" business/finance with commercial and they feel like they are working the customer service desk of a department store with home mortgage.

DSCR is the ratio of NOI to debt service. Debt service is what you pay to service the loan which is principle and interest, aka your loan payment. When making a payment on a home through an escrow, they may include property taxes and insurance into your payment. Financial statements in the commercial world separate these out to where they are considered an expense and do not count as debt service. Typical DSCR minimums by banks are 1.25-1.3. As an example, lets say a property makes $1,250 in NOI per month and the debt service is $1,000. This is a DSCR of if 1.25 (1,250/1000).