A common question I see on the forums is, How do I find a bank to lend to me? The answer should actually sound fairly familiar: You’ve got to pound the pavement. Here’s how!
What Type of Bank Should You Look For
The first thing to figure out is what type of loan or institution to pursue. One of the best ways to get started in buy-and-hold real estate is with an FHA loan or 203K loan. With these loans, you can get up to 96.5 percent of the property financed at a very good interest rate. The only problem is that these loans are only available to owner occupants. Luckily, you can buy anything up to a fourplex with it. So why not buy a fourplex, live in one unit, and rent the other units out?
You’re also eligible for up to 10 Fannie Mae–backed loans. These loans have to be in your name and not that of an entity such as an LLC. However, they are easier to get than a standard bank loan if you have decent credit and income. Any mortgage broker worth their salt should be able to help you get one of these.
After that, the best place to look is community banks. Large national banks are usually very conservative when it comes to smaller investors. They predominantly want to lend to large companies or homeowners. On the other hand, there are also some national lenders that focus on single-family investors — such as Lima One Capital and CoreFirst. These are worth looking into. They will generally have 30-year amortizations, but also more fees and a higher rate of interest than local banks. I would generally avoid hard-money lenders, as they are simply too expensive for holds. Even for flips, their fees and interest rates will eat up a lot of your profit.
Therefore, in my opinion, community banks are your best bet. It’s easier to build a relationship with these banks. And because the loans you will be taking out from them are portfolio loans (they keep them in house and don’t sell them on the secondary market), you will usually be granted a bit more leeway than you’d get from the one-size-fits-all national banks.
But where do you find these banks? Well, I’m glad you asked.
1. Ask for Referrals
If a bank has lent to another real estate investor who is doing what you are doing, then why wouldn’t it lend to you? At the very least, your odds are better. So the very first place to start, when looking for a bank, is to ask around. Start by asking any real estate investors that you know. Then, go to your local Real Estate Investor’s Association (REIA) meeting. Rub shoulders with other investors, and ask them who they are getting loans from. I’ve never met a…