Over the last couple of weeks, I’ve detailed for you exactly what you need to do in order to apply for and get a traditional mortgage loan for your investment property. I’ve given you essentially every single question that a loan officer would ask on the residential loan application, and I’ve given you a list of just about any type of documentation that you would need in order to buy an investment property with a traditional mortgage loan.
Are there exceptions to the loan application questions? Nope. It’s called the “uniform” residential loan application for a reason.
Are there exceptions to the loan application documentation? Sure. I’m sure I could write a novel on every exception that I’ve come across, but I’ll spare you the details.
But wait, there’s more! There are a series of questions that need to be answered that are not found on the loan application, but can have implications as to what products are recommended to you as a client, how the loan process is going, and what to expect of your loan after it closes.
I’m like a doctor… a loan doctor. Not really, but bear with me here. There is a bad reputation outside the mortgage industry that loan officers are just application takers — and many are! I don’t see it that way. Sure, my job is a sales job, but that doesn’t mean that I don’t know anything about finance. Rather, I’m a student of it.
Just as a doctor listens, assesses, and then diagnoses your health, a top notch loan officer should probably do the same. A skilled loan officer listens to what you have to say, assesses the situation based on that information, and then recommends a loan program to best suit the borrower’s needs.
It only makes sense if you think about it. Here is someone who is at least partially responsible for the most amount of money you’ll most likely ever borrow in your life. Shouldn’t they have a reputation similar to that of other financial professionals — like a CPA, a financial advisor, or an attorney? You bet they should.
Remember, you can be totally prepared in filling out the uniform residential loan application and have all of your appropriate documentation ready to go for your loan officer. But good loan officers dig deeper because there’s more to it than that.
Below is a series of questions with anecdotal information as to why you might hear this question. You can answer these with your loan officer as well. I guarantee your loan officer who doesn’t normally ask these questions will be impressed.
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8 In-Depth Questions You Should Be Prepared to Answer When Applying for a Loan
1. Realistically, how much do you expect your household income to increase or decrease in the next three to five years?
This has implications on what type of loan will be recommended for your situation. If your income is going to increase, an ARM loan, which carries more risk, might be a better bet because of better cash flow. And then if interest rates drop, you can refinance. Or as your income increases, you can refinance to extend the term and lower the payment. On the other hand, if your income is going to decrease (which lenders don’t like), you might be more comfortable with a fixed rate loan.
2. What is the most important component to you about the loan process?
Some say clear communication, some say a quick loan process, some say a great rate. A good loan officer can tailor their service to meet your needs. This is by far my favorite question because it acts as a guide as to what is important to you regarding the loan. It should really get you thinking about how you like to be served.
3. What is your preferred form of communication during the loan process?
Pretty self-explanatory, right? At least, you’d think it would be. With the new generation of investors, I’ve had to include text message as a preferred form of communication to go along with phone, email, and the rarely-used fax. By far, phone and email are preferred the most. If you have to hunt down your loan officer to communicate with you, find another loan officer.
Regardless of what type of communication you use, make sure you’re on the same page with your loan officer as to when they will be communicating with you. For example, do they call you once per week, email you daily, or text your for every milestone? Definitely information you need to provide.
4. Do you foresee incurring other financial obligations in the next five years (e.g., new car, baby, college expenses, change in work time, etc.)?
These new financial obligations can definitely have an effect on your loan recommendation. If you are incurring new expenses, then plan for them. Perhaps use some equity in your primary residence, or use some equity in your investment property. Run the numbers to get different borrowing scenarios, and figure out which is best for your particular situation.
5. How would you describe your financial philosophy? Is it conservative, moderate or aggressive?
Aggressive or even moderate financial philosophies may suggest that an ARM loan with the lowest rate possible is the loan of choice. This usually lends itself to more cash flow. On the flip side, a conservative financial philosophy might suggest a long term fixed rate loan and someone who would want to pay off the house as fast as possible. I’ve found that most investors are on the moderate to aggressive end of the spectrum.
6. Are you planning to go out of town at any time during this transaction?
You would think this may be obvious to have open communication with your lender, but this is just not the case based on my experience. As long as you still have to have wet signatures in the real estate process, this is an important question.
If you’re out of town in the US, you can usually find a notary to sign docs wherever you are. I’ve even heard of a nightmare scenario in which the client was out of the country, but had luckily instituted a power of attorney to close on his house.
7.Would you like to establish an impound account for property taxes and/or hazard insurance as a part of this new loan?
Oftentimes, impound accounts can get you slightly better pricing on the loan. I’m pretty sure the lender makes money on the backend somehow. On the other hand, you may prefer to pay your taxes and insurance separately. But this is definitely important information to communicate with your loan professional here. Many lenders will require you to have an impound account for your investment property financing.
8. Would you prefer to pay your closing costs out of pocket, or would you prefer that I price them into the interest rate on the loan?
Some clients want a slightly higher interest rate so they don’t have to come up with money out of their pocket. By doing this, the loan officer is essentially pricing the closing costs into the loan. Then again, some clients prefer to get the lowest interest rate possible and pay all of the closing costs out of pocket. On a refinance loan, a third option would be to roll the closing costs into the loan amount.
Alright, there you have it. I’ve given you information on what questions you should be prepared to answer for the loan application for your investment property, what documentation you need to provide (and then some) for the financing of your investment property, and I’ve given you a series of questions that should most likely be asked in order to ensure everything goes smoothly with your loan transaction on your investment property.
Hopefully these last three blog posts get your mind thinking as to how better communicate with your loan officer.
What other questions can you think of that may be important to ask?
Submit your questions and comments below.