7 Simple Steps to Get Approved for a Conventional Real Estate Loan

by | BiggerPockets.com

Getting a conventional loan is not a complicated process, but there are a lot of moving parts. Allow me to give you a quick summary of the entire process, so you’ll best know what to expect when getting your loan.

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7 Simple Steps to Get Approved for a Conventional Loan

Step #1: Shop

When shopping for a conventional loan, I recommend beginning your loan search before you get your property under contract. After all, the bank needs to approve both you and the deal before lending, so you might as well get the first half of that equation out of the way to make sure you aren’t wasting anyone’s time. It would be best to know before shopping for a deal whether or not your credit score is high enough to secure that deal!

Start with the bank that you already have your primary checking account with. Schedule an appointment with the loan officer, and actually sit down with them. Ask them what kind of loan programs they have for rental property loans. Ask them the rental property loan amounts they typically lend on, the current interest rates, the term, and any other information. Have the same conversation with three or four other lenders in your area, and be sure to mix it up between banks, credit unions, and mortgage companies. Once you have the basics from each company, pick one and get pre-qualified.

conventional-loan

Step #2: Pre-Approval

Getting pre-qualified means getting a conditional “yes” from the bank before you even find a deal by bringing in all your financial paperwork. In other words, the bank approves you before they even see whatever property you hope to buy. Now, of course, the deal will need to make sense to them, but getting yourself and your financials approved is the most difficult part.

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Of course, it’s possible to skip the pre-approval and just bring a deal and your paperwork in, but when you’re hunting for a killer real estate deal, this pre-approval can help a lot.

Step #3: Submit the Property Information

Once you find your deal, it’s time to get the second half of your approval equation started: the approval of the property. The lender will require you to submit (or have your real estate agent submit) information about the property, most likely the P&S agreement. The lender may also want to see additional documents from you if it’s been awhile since you got pre-approved (such as updated pay stubs and bank account information).

Step #4: Loan Goes to Underwriting

When all the information has been gathered, it is sent to the lender’s underwriter, who will give the final “yes” or “no” on the loan. It’s likely that during this time, the underwriter will make you jump through numerous hoops before giving you the loan. In the next chapter, I will go into more detail on this process and how to ensure that you get a “yes.”

Step #5: Lender Issues an Appraisal

The lender will likely hire a residential real estate appraiser to give them a valuation of the property. The lender’s goal, of course, is to be secure in their investment, so they want to make sure they are not loaning more on the property than they should (and also that the property is in good enough condition for them to loan on). A typical single-family house appraisal will cost approximately $400, while a small multifamily appraisal might cost up to $1,000. If you are buying a commercial property, expect to be in for at least $4,000. This appraisal cost is not generally fronted by the lender, but you will be required to pay this before the appraiser will go out.

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This, of course, is to protect the lender from spending money on an appraiser and then having the loan not go through.

Step #6: Loan Goes Back to Underwriting

After the appraisal is complete, the underwriter once again reviews all the documents for the property, including the information just obtained in the appraisal, and decides whether or not they want to take the risk of lending to you. They may, once again, ask for you to jump through certain hoops. For example, I once had an appraiser require that the gutter down-spouts on a property have “splash blocks” installed before they would issue a “yes” on the loan. They also, again, may want to see more pay stubs or other financials from you. Just get them what they need, and do it as quickly as possible. The biggest delay in the underwriting process is usually the borrower needing to get paperwork to the lender, so don’t be a clog in your own pipe! Ultimately, underwriting will either approve or deny the loan.

Step #7: Loan Closes

If the loan is approved, the bank will let you or your real estate agent know. The title company or attorney will also be informed, and closing will take place soon after. At the closing table (typically at your title company or attorney’s office), you will bring a check for the down payment, and your lender will wire over the funds for the purchase. The title company or attorney will take care of the paperwork, and you’ll be the owner of a new property.

Any questions about the process? Anything you’d add?

Comment below!

About Author

Brandon Turner

Brandon Turner (G+ | Twitter) spends a lot of time on BiggerPockets.com. Like… seriously… a lot. Oh, and he is also an active real estate investor, entrepreneur, traveler, third-person speaker, husband, and author of “The Book on Investing in Real Estate with No (and Low) Money Down“, and “The Book on Rental Property Investing” which you should probably read if you want to do more deals.

9 Comments

  1. Rob Cook

    Good summary. Borrower applicants should realize that they are, in essence, entering a sales-process, wherein the lender is judging whether to lend to you or not. So, act like you want to leave a favorable impression on the lender, or you likely won’t. It is amazing how easy it is to undermine your loan application by not taking it seriously and acting professionally. If they have to repeatedly chase a borrowing applicant down for information they requested, they, rightfully, tend to figure they may have the same poor experience with getting your monthly mortgage loan payment!

    By the way, Brandon, I have been studying your book, Managing Rental Properties, https://www.biggerpockets.com/store/managing-properties-physical
    repeatedly for the last month and find it to be extraordinarily helpful and thorough. And I own over 50 rental units! Great Job! Thanks.

  2. Corey Woodman

    Thanks Brandon,

    I’m learning as much as possible about all types of funding as thus far I’ve only done 1 wholesale deal and actively involved in my first lease option. All with OPM. I have a long term goal of being a rental property owner of some multi family properties and I know I have to get my credit back up to par beforehand. I have been passionate about Real Estate investing since I first heard about it in October 2017. Love this site so much and can’t get enough. Thanks again!!

  3. Tim Swierczek

    Hey Bradon,

    I don’t understand why you would even mention that a person could a purchase agreement on a property without a Pre-Approval. Starting with a pre-approval before shopping for a home is both real estate negotiation and mortgage process 101. You also used the terms Pre-Approval & Pre-Qualification interchangeably which they most certainly are not. This was an opportunity for you to distinguish between a pre-qual and a pre-approval. I would have split this step into 2 parts or a&b for the same part. Either way, this section is highly flawed and misleading.

    A pre-qualification only shows the amount borrower could qualify for based on the information that was verbally presented to the loan officer/bank. A reputable lender will not issue a pre-approval letter based on this information because it is not possible to determine if a borrower qualifies based on a pre-qualification.

    A pre-approval is the “yes” from the bank that you labeled a pre-qualification and it only happens when the borrower supplies the necessary documents so that the lender can reasonably determine the borrower will, in fact, qualify for the loan. The difference between the two is significant.

    Brandon, you are highly influential and a great advocate for investors. I admire you and I like your stuff, but this was not your best work. I respectfully ask you to revise this article to be more accurate.

  4. Upen Patel

    There is even an opportunity to take the approval process one step further. The the loan pre-underwritten with the address at TBD. The bank issues a conditional approval letter. This is the closes someone can come to a cash offer.

    Adding to Tim’s comments (above), the stacking order is:
    * Pre-underwrite (conditional approval letter) – Best
    * Pre-approval – good
    * Pre-qualification – worthless

    • Tim Swierczek

      Upen I totally agree with your analysis. We practice Pre-underwrites on my team. The irony is that our company offers them but most loan officers do not utilize the program. Maybe Brandon should have a guide on how to pick a loan officer, not just a company.

  5. Jennifer Alexandra

    I am extremely grateful how many professionals connect on here. I am new to real estate. I can build anything with a set of prints but selling and buying I have no clue. Im still on the fence about getting the Rentals book. I am currently living extremely below my means to save money and almost have a 2nd pt job to help even more. What helps me even more is I have 2 people I can trust would pay rent on time and live clean so if I can get something I will have plenty of cash flow to pay down a loan. Do I have to make the minimum payment on a mortgage or can I pay more than my minimum like every few months to help paydown the loan? I love the fact you take the time out of your busy lives to feed those of us who want to work for it!

  6. It’s important to remember that loans for non-owner-occupied properties will be different from those for owner-occupied properties, and moreso if it is a condo or attached property that you are interested in purchasing. If you are considering the choice of an Adjustable Rate Mortgage (ARM) to finance your purchase, you’ll need to include the possibility of higher future costs in any projection of future cash flow and plan accordingly. Also, if you have a “hold” timeline for the investment property (i.e. 5 years) it may be possible to ameliorate these risks with a choice of an ARM that fits this time frame.

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