One of the greatest lessons I’ve learned in real estate is the value of a great lender. Like everybody, I appreciate the value in shopping around for the best deal… but, with mortgages that often means getting a lower rate and then being surprised by hidden fees, delays and undisclosed terms that end up costing far more money over the long haul.
I’ve also learned that there is a huge difference in lenders. And, knowledge and experience
are worth their weight in gold.
You should also understand the difference between a mortgage company that does its own funding, and a mortgage broker. Brokers sell their loans to investors, and have less control over the underwriting process than mortgage companies that underwrite their own loans. A mortgage banker is responsible for finding a source of money, approving the loan for a particular borrower and finalizing the transaction, which is also referred to as closing the loan. One of the primary advantages of using a mortgage banker over a mortgage broker is that certain fees such as the broker’s fee can be avoided by dealing directly with the source of funding. In this way, a mortgage banker also usually helps speed up the process by eliminating the middleman. On the other hand, when dealing with a mortgage banker, the ability to comparison shop is diminished because mortgage bankers generally only represent a few investors.
In my experience, the best of all worlds is a mortgage banker who represents multiple investors. That way, your loan officer not only has direct control over the process (local processing and underwriting), but also has the ability to assess different products which may suit your particular needs.
Qualifying to purchase investment property is slightly different than qualifying to purchase a home that you plan to occupy. Generally speaking, if you are getting commercial (as opposed to private) financing, you can expect to make a 20 – 25% down payment. The best of all worlds is a mortgage banker who has access to a wider variety of loan products and sources. Expect a 20-25% down payment for an investment transaction.
Whether or not you will be able to count the proposed rent you will receive toward the purchase for qualification purposes will depend on the type of loan product, and whether or not you can demonstrate a history of property management. This is one of the primary reasons that it makes sense to establish a relationship with a good lender early on, so that they can help you set your budget and parameters before you begin looking.
Need help finding lender that is a good fit for your situation? Email us at concierge@lizmoore.com. We'd love to help!
This piece of content is an excerpt from our ebook, "The Field Guide to Real Estate Investing". Click below to read the entire ebook.
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