Why do I need to arrange financing before looking at properties?
Listing agents will throw your offer in the garbage unless your offer is attached to proof of funds. No exceptions. You could be the Dalai Lama with a brief case full of Benjamins and they will not look at your offer. Getting an approval letter from a lending institution can take weeks and by the time you get that letter, there is a 95% chance your property will not be available. If you are paying cash, you just need to show a screen shot of your bank statement OR get a statement of funds from your banking institution.
Should I get a loan or pay cash?
If you can get a loan, we highly recommend it. The number one reason is you can leverage your money to get a better return on your cash. The second reason is because you can hedge against a bad purchase if the property doesn’t appraise to the loan amount.
Isn’t cash king in the foreclosure market?
Sometimes. If the property is owned by Wells Fargo or Bank of America, your cash is not king. If a competing offer has a Bank of America loan letter and you have cash, you will be beaten by the buyer who has the loan. The reason is because Bank of America makes more money on the loan than the asset sale. The same is true with Wells Fargo. When you see the properties listed on this site, you will notice that the ownership is shown to help you decide on which properties are best for you.
Who offers the best lending rates?
Generally Bank of America, Wells Fargo and Chase are best unless you are a local who belongs to a credit union. If you have a job (get a yearly W-2) you should try Bank of America, Wells Fargo, or Chase. If you are self employed and/or have a dubious credit score, you will have to get paper from a mortgage broker. Our preferred mortgage professionals are listed on our site so you can get more detailed rates and information from them.
What if my income or credit is dubious?
Hard money is expensive. Generally these are at about 5 points up front and 10% interest only with a principal balloon at the end of 3 years. These “bridge” loans are not recommended unless you are very experienced and/or have a large lump sum payment coming due.
How about getting an owner/carry property?
There are a few available and many of these are available from our pool of existing investors. HOWEVER, you will pay a premium on the purchase and a higher interest rate. Since there are so few available, this type of transaction rarely occurs.
Can I get financing on the property after it closes?
In the old days, you could close the property and then get a line of equity or refinance the house. Those days are over. The minimum curing period is 6 months and most major lending institutions are at least 1 year. Back to Top
Real Estate Financing Tips
Try to leverage your money.
Cash is not necessarily king. If you can get a major lender to finance your investment, you will increase your return on cash by at least 5% annually. The days of easy credit are WAY over. Many of our investors are shocked to discover that their perfect credit score doesn’t hold water any longer. The biggest driver at the moment is employment status. If you are self employed, you are going to be stuck with a hard money loan.
Get lender approval before traveling.
It can take weeks for a major bank to issue a letter of credit. If you want to go scouting before getting a letter of credit you are wasting your time. Your lender will be driving the bus and you are wasting your time looking at properties before your financing is determined.
Start with a major lending institution and then work your way down.
We describe major lending institutions like Bank of America, Wells Fargo, and Chase as “A” paper. “B” paper would be third party lenders usually represented by mortgage brokers. “C” paper is hard money at usually 10% and 3 points up front. We do not recommend getting multiple letters of credit. This approach can have a negative impact on your credit score. Start with “A” paper, if you can’t get “A” paper, move down the ladder. Using a shotgun approach to picking a lender usually backfires.
Get a loan with your current bank.
You will get better rates and probably better service if you start with the bank you currently use. However, if you are out of state, confirm that your local bank can write paper in Nevada. Not all lenders are licensed in all states.
Stick to one lender once an offer is accepted.
Switching horses after your offer has been accepted will delay your closing time. Delays in closing are expensive and can possibly blow the deal. It is possible to lose your earnest money and all the time you have spent appraising / inspecting this property if you can’t close on time.
Avoid major purchases and do not change jobs while you are in escrow.
Your lending institution will do a verification of income, credit and background check just before you close. If you make a drastic change in your financial profile, the escrow train will come to a screeching halt. Suitcases and bodies will go flying everywhere. If you are dealing with “A” paper, there is a distinct possibility the escrow train will go off the rails and you will lose your earnest money. If you even smell of a financial profile change, you need to tell your agent immediately so everyone can brace for impact.