11–13 minutes to read

How to the Right Mortgage Loan Officer Can Save You Thousands of Dollars

A few months back, I was looking for a conventional mortgage loan for my real estate properties.

Of course, like any savvy investor, I wanted to save the most I could by putting the least amount of money down on my properties.

Unfortunately, I was a beginner investor in the Memphis area so I had no clue how to start my search for a mortgage loan officer.

Usually, one can easily find a mortgage loan office by joining and networking among their local Real Estate Investor Association. But, I never joined.

So, I pulled the typical rookie mistake.

I took the recommendation of my Realtor. While this, in and of itself, is not a bad thing, it does prevent most people from rate shopping.

At the time, I was looking for a lender that would eventually allow me to finance more than four properties.

After calling up the mortgage loan officer that my Realtor’s recommended, I decided on using him based on the fact this mortgage loan officer was local, the bank that he worked for was a portfolio lender,  and their underwriting was done “in-house”. Having loans approved in-house makes for a very efficient process because my mortgage loan officer could have simply walked into the next room to talk to the approving authority instead of dealing with a separate distant underwriting department.

Also, I found out that his bank, Iberia, would have allowed me to finance up to ten properties. This was good start because most lenders only allow investors to have four properties financed.

Once the mortgage loan officer and I got started, he sent over the quote I requested on a $125,000 property.

4.5% 3o year fixed rate.

20% down payment

No origination charges or other fees.

Principal, Interest: $506.82 monthly

Cash due at closing (before other closing fees*): $25,000

At 20% down, I would have had to bring $25,000 to the table.

Not bad.

1. Don’t Settle For the First Mortgage Loan Officer’s Terms

I thought the rate was a little high for the interest rate environment we were in, but I had to consider that the property was an investment property and not a primary residence. If it were a primary residence, the rate would have been around 3.5%.

Regardless, a week earlier, I received an even higher rate from Wells Fargo.

A week earlier, Wells Fargo gave me the following terms:

5.0% 30 year fixed

20% down payment

No origination charges or other fees.

Principal, Interest: $536.82 monthly

Cash due at closing (before other closing fees*): $25,000

So, I was moving in the right direction.

Had I stopped with Wells Fargo I would have been paying a half percentage rate more. Or about $30 more per month. Over 360 months and that calculates out to an extra $10,800.

I decided to call around to other banks to see just how much of a deal I was getting.

The next mortgage loan officer I contacted was from Quicken Loans.

There terms, too me, were way out of my range.

4.25% 30 year fixed

25% down

2.25 points due at closing ($2,025)

Principal, Interest, and Mortgage Insurance: $461.19 monthly

Cash due at closing (before other closing fees8): $33,275

Adding the points to the down payment, I would have had to bring $33,275 to the table…just to close, in addition to other closing costs!

At that point, I concluded Iberia was the bank for me.

2. Ensure You Know the Current Mortgage Buyback Guidelines

I thought I was all set to go with Iberia until my friend and I started comparing rates.

He, too, was searching for mortgage rates.

After I disclosed the terms given to me by Iberia, he told me that he received similar terms with US Bank Home mortgage, but he would only had to put 15% down.

I was initially puzzled and actually didn’t believe him.

Up to this point, every bank I talked to and every online search I did led me to believe that 20% down was the minimum for any investment property loans.

Why wouldn’t I want to save an extra 5% up front?

A 5% savings, or $6,260, could go towards my rehab cost or my cash reserves requirement.

So, I called US Bank Home mortgage to verify.

As soon as a representative from their mortgage call center got on the phone, I asked about the 15% down requirement and was quickly told that I was wrong, that the minimum down payment due to Fannie Mae and Freddie Mac Guidelines for all investment property loans was 20% down.

At this point, I didn’t know who to believe, my friend or the bank representative’s mortgage loan officer. So, I told my friend about the bank’s conversation via text message, telling him what the bank had told me, to which he quickly responded with a link:

Fannie Mae Standard Eligibility Requirements for Investment Property [pdf]

Clearly, in Fannie Mae’s guidelines, the Maximum Loan to Value required was only 85%, not 80%, which meant that only 15% was required for a down payment, assuming US Bank used these same guidelines.

Seeing this, I did my own research looking into Freddie Mac’s Requirements for Conforming and Super Conforming Mortgages and saw that they, too, only required 15% down for investment properties.

Armed with this data, I talked to my friend again and asked him to give me the contact information to the person at US Bank to whom he had talked. And that’s when I got the confirmation that I only needed to have 15% down for my investment property.

3. Trust, but Verify, the Information You Receive From Your Mortgage Loan Officer

I was ecstatic to have learned this “new” information.

Apparently, these guidelines changed earlier in 2016.

So, it’s kind of forgivable that not every mortgage loan officer I talked to knew these guidelines.

Armed with this new information, I called my mortgage loan officer at Iberia and I informed him of the guidelines that I now knew about and asked how would my terms change.

At 15% down, my terms changed as follows:

4.75% 30 year fixed

PMI $96 per month

No origination charges or other fees

Principal, Interest, and Mortgage Insurance: $650.25 monthly

Cash due at closing (before other closing fees*): $18,750

While this was better for my cash reserves, I wasn’t prepared to pay 4.75% and an extra $96 monthly for PMI. I thought $96 for PMI was excessive, given that a typical rate is .75% of the loan value.

Given these high numbers and the fact that I the mortgage loan lender didn’t provide me the 15% down payment option before, I chose to search for a better deal.

I called up the mortgage loan officer who told my friend about the 15% investment property terms to see the terms he’d give me.

Ultimately, after confirming that US Bank allowed for a 15% down payment for my investment properties, I decided to cancel my application with Iberia.

My ultimate terms from US Bank were as follows:

4.25% 30 year fixed for $102,000

PMI $43.14 per month

$395 Application Fee + $395 Loan Commitment Fee = $770 

Principal, Interest, and Mortgage Insurance: $523.59 monthly

Cash due at closing (before other closing fees*): $19,500

Conclusion

Ultimately, going with a mortgage loan officer who knew the most current guidelines saved me $5,500 at closing. And the cost to me was only an extra $15 per month when compared to my first quote. Because I received two mortgages through the same mortgage loan officer, I kept over $11,000 in my pocket.

If I ever get another conventional mortgage to purchase an investment property, I’ll be sure to first check the most current lending guidelines, and then call around to see which bank adheres to them. Luckily, I found a mortgage loan officer at US Bank that knew his stuff. And for that reason, I’ll likely just stick with him.

*Other closing fees include escrow, title insurance, title company fees, appraisal fees, termite inspections, recording fees, etc.

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