Whether through flipping shows on HGTV or browsing the internet for the best ways to build wealth, you have found that real estate investing is the best option for you and your financial future.
Let me just say, I think you are making a great decision.
Deals, Agents, and Lenders—Oh My!
Picture this scenario. This is one of the newest ones, and yes, I have gone through this myself.
You’ve accumulated hours of research and knowledge by scouring the BiggerPockets forums, reading blogs, listening to BiggerPockets podcasts, and you’ve learned what strategy you want to execute to achieve financial freedom (or simply increase passive income). .
You’ve picked the perfect neighborhood—with hipster coffee shops and an active nightlife—where you’re likely to find young, athletic couples running around all day long.
You’ve saved enough money for the down payment and analyzed a few dozen properties using the BP calculator. You know “enough” to figure out what a certain asset will produce in income/profit.
You’re feeling confident and ready to buy your first investment property!
Connected: 7 Life-Changing Lessons I Wish I Knew As A Real Estate Newbie
After weeks of waiting and searching the MLS for that perfect investment, it finally pops up, and you call your agent.
“Hey, Bill! I found a property. Let’s check it out!”
A few hours later, you meet Bill at home, and at this point your stomach is filled with butterflies with the excitement that this could be it! You look at it, and everything looks good. You tell Bill the magic phrase that all new investors want to say: “Let’s make an offer.”
Bill says, “Great! All I need is your pre-approval letter from your lender, and we’ll submit our offer!”
You bill your pre-qualifying The letter your mortgage lender gave you because it’s supposed to be “good enough” (don’t know the difference).
You propose, and believe it or not, it is accepted! However, the glory is short-lived.
You have no choice but to give up the property as your loan defaults. There goes the deal.
pre-qualifying
Now, this is incredibly common, and it actually happened to me. You see, there is a big difference between being “pre-qualified” and “pre-approved”.
If you haven’t gone through the process of calling a mortgage lender yet, it will sound intimidating. But believe me, it is not so. You call a lender who has been referred to you or found on BiggerPockets.com (or even through your local REIC). They will ask you basic questions such as:
- What is Your Credit Score?
- How much is your income?
- Do you have any Recurring Debt?
- How much is in your bank account?
- What and how much property are you looking for?
- And some other questions which you should definitely be able to answer.
Based on your answers (all of which must be truthful and accurate), they will give you a quote based on what you Needed Can get They will draft a letter based on the information ascertained, and this is known as your pre-qualification loan amount.
While this may sound like a great thing, and it’s a big step for a newbie, you should also understand that all it’s really saying is, “Here’s a number that doesn’t really mean anything and is only You have to be interested in working with us.
pre approved
That’s really what matters. Don’t bother sending your pre-qualified letters. If you are serious and ready to make an offer that can be accepted under contract, you will need to be prepared in advance-allowed,
What is the difference? A pre-approval letter is an official quote from a lender saying that they will lend you “X” amount of money for a property – whereas a “pre-qualification” is saying that they probably: loan you “x” amount If Everything you say has been verified and verified.
When it comes to getting pre-approved, they’ll run a credit check (this will definitely come as a shock to you if you’ve been using Credit Karma to check your credit score).
Every lender I’ve talked to has told me that you can expect your Credit Karma report to drop 20 to 50 points when you find out exactly what it is. And yes, this happened to me.
Also, they will need two years’ tax returns. If you have a lender that is willing to do some extra work, this can be done with a little work.
Along with the credit check and tax return, they will request:
- pay stubs
- bank details
- a photocopy of your ID
- If you’re out of college, your student transcripts probably
- and certain other items that your lender will specify
The whole process takes a day or two, but if you are ready to invest, this is one step you need to take. Especially in a hot market like the one we have here in Denver, Colo. If you are not pre-approved, you will be pre-ejected. (That was a good one, wasn’t it?)
progress, progress, progress
When it comes to starting out as a newbie investor, the road is long and full of lessons, mistakes, wisdom and rewards around every corner.
The only true mistake you can make is not to take action. To be completely honest, I’ve learned more just doing it than I have learned from BiggerPockets.
Each stage will bring new obstacles, and each obstacle will bring new knowledge and experience. It never ends and is always beneficial (as long as you don’t repeat the same mistakes). Take action and keep moving forward.
“The distance between your dreams and reality is called action.” -unknown
What steps have you taken in the past few weeks to close your first deal? What obstacles have you faced—and what have you learned?
Tell me your experiences with a comment!
Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
