Everyone wants to get the best possible deal, and for good reason. Buying low at the front end of a deal will ultimately help your bottom line. That being said, there are times when the lowest interest rate or least amount of closing costs may not be the best deal. It is no secret that closing a loan is not nearly as easy as it was in the past. Choosing the right lender and how you proceed to invest are integral to the process. While a majority of lenders have similar loan programs, there are a few that have specific ones catered to investors. If you can’t close the deal, any promise of a great rate or reduced loan costs won’t make a difference. Here are some pointers to help you choose the best lender for your next deal:
1. Assess your loan situation: Before you decide which lender is best for your particular situation, you need to evaluate what kind of borrower you are. Even if you don’t know specifics, you should be able to cite your credit score and how much of a down payment you can come up with. Your credit score provides your monthly minimum liability payments, and there are many places to get an idea of your proposed monthly payment. These numbers, along with your gross income, will allow you to figure out your debt to income ratio. The more information you have about your loan application, the better you can determine which lender you are meant to work with. If your credit score is below average, a mortgage broker may have better options and programs for you. If you are putting down a signification amount, have strong credit scores and low debt, a local lender may be the best way to go. Before you do anything, however, you should know as much about your strengths and weaknesses as possible. Understanding where you could stand to improve will often lead you in the right direction.
2. Ask questions regarding underwriting: Underwriting is just a fancy way to describe the individual that makes a decision on your loan application. When your loan items are submitted, an underwriter will review the file and evaluate whether or not additional items are needed. When talking to prospective lenders, you should ask if your underwriting is done in house. If there is a team of underwriters present, it leads to quicker turnaround times, as well as a direct line of communication. There are many lenders who package the file and send it to underwriting several states away. Technology has certainly made the process easier, but nothing is easier than walking down the hall and physically talking to the decision maker.
3. Investor specific programs: The smallest changes in the loan application can impact whether or not it receives approval. It is important to ask your lender which programs are offered to investors. Find out what makes these programs different from the lender down the road. Most of the time, the changes will be subtle, but occasionally there is something that matches with what you want done.
4. Average length of approval: Loans are currently taking an average of 45 days to close. This number is slightly higher for investment loans because of the additional documentation required. This is a long time for a seller to feel comfortable on a contract. There are lenders out there who can close loans in half the time if you provide everything on your end in an expedited manner. Ask how long their deals are taking to close, and if it includes investor loans. If the lender boasts about 21 day closings, it may be worth it to use them, regardless if the rate or fees are slightly higher. The more time it takes to close, the more susceptible you are to problems in the loan.
5. How often you communicate: One of the biggest pet peeves for people involved in a real estate transaction is with the level of communication. You need to ask your lender how they plan on keeping you updated throughout the process. Technology has made it easier than ever to stay in touch. All it takes is a quick text or email to let you know what is going on. Throughout the process, there is plenty of down time. That being said, you want to know if the appraisal was ordered or if the title search game back. These are the little things that will put you at ease and make the process as easy as possible. Ask your lender how often, and in which manner, they will keep you updated. How they answer can determine if they are a good fit for you.
Saving money and getting the best deal are always important. They should be a consideration, but they are far from the most important aspect to consider. There may not be much of a difference in payment between 4.375 and 4.75 percent. However, using the lender with the higher rate may be easier to work with and offer a product that works for you. Before you commit to anyone, talk to as many people as possible and don’t be afraid to ask questions.