How to choose lender for first investment property - Dallas, TX

23 Replies | Dallas, Texas

Hello BP Community!

I'm taking the dive and looking to purchase my very first investment property out of state in Dallas-Fort Worth area (I currently live in Los Angeles). So far I have some good contacts with realtors and property managers and will be flying out to look at some houses this weekend. 

What is the best way to find a lender for a first time investor that is not local? I've done some searching online through Yelp and have one recommendation from a real estate broker I am working with. Any advice on what has worked for others will really help! Thanks all!

For my first 3, I used conventional financing. They give a better rate. PNC, wells, quicken etc

The exception would be if you are buying a 5 unit or more or buying in the name of LLC

Also with conventional financing keeping mind you will need 20%-25% down. With HML I believe the terms are about 12% , and about 1-3 pts . Last cool thing I found about a week ago here on BP is the NMLS site; where you can verify the lender you are working with has a track record.

See link below:

http://www.nmlsconsumeraccess.org/TuringTestPage.aspx?ReturnUrl=/Home.aspx/SubSearch

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HI Calvin,

I am licensed in TX and from CA originally but now reside in WA with experience in working with investors if you had any questions let me know.

Generally you'll need around 20-25% down, usually 25% down since at 20% down the rate is around .375% higher at 740 fico + credit.

seller contribution cannot be used for "down payment," with conventional or regular financing, maybe on commercial but not residential.

Originally posted by @Ludmila Hill :

@Calvin Clark Hi there! I'm in Sherman Oaks as well. I'm also looking at out of state market for buy and hold. Why did you choose Dallas?

@Albert Bui Can the 20% or part of it come from a seller financing? So let's say the PP is $500k, can the $100K be seller financed? Thanks!

 Yes it can come from the seller if the seller carries a note back, but the seller cant outright contribute proceeds towards your down payment ( closing costs and prepaid costs yes, but not DP).

You'd need a lender who understands the lenders guidelines regarding a creation of a 2nd mortgage note carried back by a trust deed in CA. As an example, Fannie Mae and FHA have specific criteria that the 2nd note must have in order for the seller to carry back.

As long as its structured correctly and it fits within conventional or FHA guidelines (assuming this is a 1-4 unit residential transaction) you'll be able to bring in less down payment.

As an example if you bought a property and the loan is 80%, seller carries 15%, you could bring in just 5% on a 1 unit SFR/condo purchase and have no monthly mortgage insurance since there is 20% of money in front of the 80% loan (15% sellers, 5% your contributed equity/down payment).

Banks dont care whose 20% is in front of their 80% loan it could your 20% down payment or a combination thereof as long as it fits within guidelines.

@Albert Bui  Hi Albert, that is good information to know.  Would your example above also be applicable on a 2-4 unit property with 80% loan, seller carrying 15% and you bringing 5%?

It sounds like it would be when you mentioned "assuming this is a 1-4 unit residential transaction" but I wanted to confirm.

Originally posted by @Ryan Canfield :

@Albert Bui  Hi Albert, that is good information to know.  Would your example above also be applicable on a 2-4 unit property with 80% loan, seller carrying 15% and you bringing 5%?

It sounds like it would be when you mentioned "assuming this is a 1-4 unit residential transaction" but I wanted to confirm.

95% combined loan to value or CLTV is for 1 unit SFR/Condo mentioned about each type of property has a max it can go up to. 3-4 unit is max 75% so 25% of the money has to be from your sources (75% first and 25% down payment, or 50% first, 25% seller carry, and 25% down payment etc)

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@Varma Adduri , How was the closing process with the bigger banks? Did you have any trouble? We are working with a local lender right now and received the pre-approval letter in order to be more competitive with potential cash buyers. I'm fairly certain the interest rates will be lower with a bigger bank like Wells, but I am trying to understand the benefit of working with a local lender. Better knowledge of the area? In house underwriting?

@Ludmila Hill Hey neighbor! I'm no expert in choosing cities good for investing, but I had read a few articles that named Dallas/Forth Worth as good investment area with solid population growth, rental markets, and new business with Toyota, State Farm, & Liberty Mutual. I'm sure there are even better markets out there, but being in Socal, we wanted a city that would be relatively affordable to fly to when necessary. Are you doing any out-of-state investing?

Calvin, I'm assuming you are talking about SFR and not multifamily. I'm not sure about The Colony or Lewisville, but Frisco / Plano have tight inventories and you will need to search hard in order to buy something that makes sense.