Ask your lender first, fast, and often
People have debt and lending questions all the time and they seem to insist on asking friends, fellow investors, or the internet. Don’t be fearful to ask a lender directly because you may not be “ready” to buy yet and doesn’t want to waste anyone’s time.
You’re not wasting anyone’s time!
Lenders work by selling you a financial product; they get paid to convert you from a tire-kicker to a closer. If you want to casually call up a lawyer and ask for legal advice, you’re going to get charged. Lawyers work on their knowledge, and they charge for their time and information. If you want to be someone who takes action and closes deals, it doesn’t make sense to avoid the lender when they have all the answers you need and they want to help you close a deal.
If you have lending questions, even if they are in the future, ask someone with direct information. Use your ramp-up time to build a relationship, and get good information straight from the source. Not all banks are equal and not all have the same products, so it’s important to get correct and thorough information that applies directly to what you’re trying to do.
These days I speak with my lender at the beginning of the year to discuss everything I want to do and how I need to maneuver to match my buying strategy with my subsequent lending strategy. Imagine if you purchase a house and do some rehab, now you want to cash out and throw a loan on it, except you haven’t spoken to a lender before now and then find out that there is something restricting your approval for a loan. Don’t get stuck assuming your lending strategy is solid, get in front of your lender FAR in advance.
Smooth is fast
This is a phrase I learned in the military, the premise is that when trying to accomplish a task under pressure we often force ourselves to go fast. The problem is that going fast just for the sake of speed doesn’t always improve efficiency; it causes us to make mistakes and not think thoroughly. The end result is an overall longer time period rather than a shorter one, the opposite goal of going fast. So in the Army they say “smooth is fast” to encourage troops to develop proper habits, think clearly and thoroughly, and not succumb to pressure. This way when a similar event comes to our mental and physical preparation will serve us far better than simply trying to excel under pressure.
I admit this is a wild extrapolation of the lesson, but I think about it every time I begin underwriting and it’s helped me. The motivation is obvious; I want to close my loans smoothly and quickly. I don’t get stressed and go into a disorganized panic, I create a system to make the process easy and I prepare diligently to execute. Building upon this idea, here are some other tips to make lending easy:
Your processor is going to provide you a list of loan docs (sometimes called stips) you’re going to need to close a mortgage, and the bigger your portfolio gets, the more you’ll need. What I do to make this easier for all parties is:
I prepare all my docs before I submit a loan application. I keep them well organized in a single folder on a cloud account waiting until the processor asks for them, then I can instantly copy him/her a link to the entirety of the docs needed and then I’m 90% done with my underwriting within 10 minutes of submitting an application.
There is always some scrounging for a weird request after the fact but the bigger the bulk of stips I can get the faster my overall process goes. It also shows the processor that you actually care about getting this done while the overwhelming majority of borrowers who delay providing their stips out of sheer laziness and/or apathy. Show that you’re well prepared, organized, and quick to respond and you’ll make loan closing a breeze.
Make them love you
Your lender will love you for being organized and prepared. I’ve worked in lending for a long time and the number of borrowers who are being chased down for documents to close a loan is staggering. This makes it incredibly easy to set yourself apart and get a reputation for efficiency. This is like any other service in that your relationship plays a significant and unspoken part of the dynamic and has a direct impact on the quality of service provided. If you are disorganized, unmotivated, and a jerk, you’re going to get the worst service someone can provide. Anyone who has worked in service knows that the best service goes to the clients who are liked the best. BE THIS CLIENT. Be prepared, have a positive and helpful attitude, be proactive, and understand. Work harder to make their life easier than you expect them to make your life easier, this may seem counterintuitive but consider the end goal: a loan that is closed quickly and smoothly. This will be done by a processor and underwriter who are motivated and excited to help you in your endeavors, you must invest in the relationship.
You’ll never need this list without a lender giving it to you first, but as I said, I like to be extremely prepared. When I put a loan application in, I like to have the lender all my documentation within minutes, far sooner than his processor could even get me the list. With that idea in mind, I’m going to provide a very standard list of documentation required to hopefully make life easier, or at least prepare my readers for what’s to be expected. I’m taking this list from a loan I just recently closed.
2 years W-2
2 years tax returns
2 months pay stubs
2 months bank statements (all bank accounts)
All home insurance policies
All lease agreements for rentals
All recent mortgage statements
All HOA balance statements (current)
This is certainly not a comprehensive list, and it’s subject to change based on lender and market conditions, but it’s the standard majority of what all lenders will ask for. It’ll most likely be a bit less if you’re just starting out, but still good to know. Yes, the process can feel invasive, especially the first time or two, but you get used to it.
Follow these simple guidelines when considering your debt policy and I’m confident they will make your life easier, and more productive.