My mortgage broker shot me down, need help

General Real Estate Investing
1

I e-mailed my broker with some questions and did not get the answers I wanted. Can someone tell me if I am asking too much or If I should find another source of financing?

My e-mail to him:

Al,
I am starting to look for a deal on a rental purchase. I have all the details worked out so when I find the deal I am looking for I can close as soon as possible. I make the same amount of money a year. I will be married at the time of purchase and may use my wife’s credit and income also. Although her credit is not that good, but we will talk about that when the time comes.

My questions are:

  1. Do you typically deal with investors and the type of financing the need?

  2. When I find a house that I can purchase at 70% of the appraised value, can you get me a loan for the full 70% price that I would pay so I could not put any money down?

  3. Could I finance 80% of the appraised value if I am buying it for 70% of the appraised value? Example appraised 100k
    purchase price 70k
    loan amount 80k
    _________________
    10k cash out

  4. Would it be more complicated if I set up an LLC and used it to purchase the property?

His e-mail to me:

Hi Steve:

I do deal with a lot of investor loans.

With conforming loan products, your loan amount is based upon some Loan to Value ratio, typically 90% or lower, based on the LESSER of the sales price or appraised value… Possible to do 100% on investment with a 80% first and a 20% second, but high FICO’s required, and strong cash reserves. On most investor loan products, at a minimum you must have 6 months PITI in reserves after closing, can be 401K, etc. May also be possible with a seller held second mortgage.

To piggyback on number 2 and address number 3, it is only possible to do what you propose on late night TV, or with a very sub-prime (read very high interest rates and terms) lender, of which I would be cautious. If you find a cooperative seller willing to hold some paper, it could work. You can under a construction program finance extra toward rehab/improvements, but would still need a legitimate down payment.

Cannot purchase real estate as LLC with conforming financing, so it would involve more difficulty, higher interest rates, and less favorable loan terms.

Conforming financing refers to mortgages which meet FNMA/FHLC criteria and get best rates. Non-Conforming loans are anything else, which might be reasonably priced all the way up to usurious, such as Integrity, Mid-Atlantic Capital, and other companies which specialize in taking advantage of people.

Not great news for you, but hope it helps. How about a partner (parent, whatever) with some money to invest?

Al

2

stoop,

i know the problem here.

the way you presented your questions makes you seem VERY green (new) to investing.

so, he gave you excellent answers upon which YOU must follow up. if you’re asking the questions like that - of course many brokers or really anyone will give you cautious and sound advice…BECAUSE THEY DON’T WANT TO SEE YOU GO DOWN IN FLAMES.

your investment savvy has not yet developed and it shows from your questions. i don’t mean that in a bad way either. i’m just being honest.

when you can talk to the talk - people will respond to you entirely different and then doors will open. maybe not with this broker - because he’s used to doing things a certain way - but i think his answers for YOUR QUESTIONS - were sound and that you should follow up on anything he said that you don’t understand…like some of his terminology etc.

you can’t get loaned more than the purchase price (very rare)…you can get more with certain loans and especially refinancing a sellers note is doable. but trying to get 80k on a 70k deal through conventional financing is HARD. contstruction loans/rehab loans and the like may be able to do IF the deal is a good one…like if the lender sees that the ARV would be over 100k…

but…then again, your broker was right in that the lender will also look at YOU…your fico, experience etc. and then come up with some terms…and he was talking about how lenders TAKE ADVANTAGE of noob’s…with no money, no credit, etc. it makes sense for them to charge 17% on loans…

they come as close as they can to predatory lending because
A. they can due to your personal financial situation
B. they should due to the risk you present in screwing up

i have some cards and information from the EXPO and i met some EXCELLENT individuals for lending. there were about 25 mortgage companies there…various lenders…i went to everyone and spent TIME at each of their booths…i listened and took their cards, seperated them by GOOD and BAD.

pm me and i’ll forward you some information on some of them.

they will

lend you money (personal guarantee) but LLC will be own the mortgage and get credit for paying off loan.

i also met a lender who gives loans…BEFORE you find a deal.

this is GREAT for foreclosure investing.

3

Thanks. I am very green. I have no idea about the financing part. I have spent all my time learning how to find deals and how to see if it makes money.

Where do I find out about this? I need to know how people finance 100%

4

You may want to find a local Real Estate Investment club in your area. That will help you learn very quickly. Also pick up a couple of the books in the resource section of this forum.
Good Luck to you.

5

Steve, just a couple of suggestions. Research on your own to see if they fit.

  1. Put the llc on hold for now. It complicates the process at the buying stage.

It sounds like to don’t have a lot of assets to protect and if you finance 90-100% of a property, you won’t have any equity to protect either. Personal liability policies for 300k, Half mil and 1 mil policies are not that expensive. This This a liability issue and involves personal risk, so you have to ultimately decide for yourself. An llc might make better sense down the road.

  1. Don’t further complicate the issue by bringing the fiance into it. If you are not married now you are buying the property as a single man. If you think you are going to be married when you buy, say so then. If her credit is worse than yours and you buy it together, then the lender could and probably will base your interest on the lowest credit score. So if she has to be left out of loop for now, you can provide for her later.

  2. I think your lender (broker) sounded incredibly professional. A lot of people in the biz want little to do with a newbie and you asked all the “I am a newbie” questions.

  3. Has he given you a prequal yet? At what amount? Have you considered a no doc loan.

JeffInCT

6

I am in NC and SC

7

Stoopitnewb,

Your first mistake was to talk to a mortgage broker. Brokers are simply middle men. They basically refer your loan to a lender who finances the deal and then charge you a fee. In additon, his answers were simply WRONG!

I have done a LOT of loans exactly as you have described. I purchase the property at something below 70% of LTV and then borrow at 70% LTV, thereby borrowing all of the money for the deal. To do this, you need an excellent credit history and you need to be working with a small local bank who keeps their loans in their portfolio. The successful investors at your local REIA know which banks to use. When you go to the bank, don’t ask a bunch of questions. You need to go to them as a serious investor, even if you haven’t done your first deal. Put together a professional presentation. Tell them what you want to do - don’t ask them if they can do it.

Getting loans is all about relationships. Can you get a local successful investor to refer you to the president of the local small bank? Can you meet these “players” at some civic functions? Get involved.

Good Luck,

Mike

8

Thanks. What do you consider excellent credit? I should have around 700 fico at the time of purchase but serious derogatory payments from 5-6 years ago.

Before I find the property I want a pre-qual from the bank. How should I appraoch this.

See what I can qaulify for then work out the terms when I find the property?

9

A credit score of 700 is pretty good, but 720 or above would be better. Those old dings won’t help any, but that will be up to the bank. The very best thing that you could do is to develop a personal relationship with a player at the bank. Play golf with them or join a civic organization that they belong to. Also, transfer your bank accounts to the bank that you anticipate using. This stuff doesn’t happen by accident.

Good Luck,

Mike