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Pre Qualification & Avoiding Analysis Paralysis

Although you may casually start your home search with a generic search in Google or Realtor.com the search really doesn’t start until you know what your purchasing power is.

Enter Pre-Qualification.  This is the step where you sit down with a lender to determine how much home you can actually afford and I’ll be honest with you, every first time home buyer says this is the scariest step.  Putting your financial background and information on Front Street is scary and intimidating but it doesn’t have to be.

Work with your real estate agent to find a lending partner that will fit your needs and make you feel comfortable.  This is the job of a lender.  To analyze your finances and income and help you determine what type of mortgage you will/ can qualify for.  They will also tell you how to get to where you need to be if you aren’t there yet.

Pre-qualification is the most important step in your real estate search because it saves you time.  You don’t want to be looking at homes in the $500K range if you can only afford $350K and conversely you don’t want to be limiting your search to $350K if you are approved for $500K.

In my case, the home I was purchasing would not have qualified for conventional financing. It needed a new roof, new siding, new floors (and subfloor), etc.; it was a complete mess.

As I mentioned, I’ve had the idea of homeownership on my mind for years and had been listening to a podcast called Bigger Pockets for about a year when the Pearl Street purchase opportunity fell into my lap.  If you are a real estate investor and haven’t listened to Bigger Pockets you are missing out.  Bigger Pockets is a podcast dedicated to helping real estate investors.  On the weekly podcast the hosts interview investors in various stages of the real estate investment spectrum, everyone from newbies to seasoned pros; one of the things that is so inspiring is that most all of them had to get creative to get their first deal.

So I figured out how much money I would need to purchase and renovate the house (I estimated $300K total, $240K to purchase and $60K to renovate) and pursued the avenue of hard money financing.

I thought long and hard and eventually worked up the courage to put up a post on my Facebook wall that read something like this:  “Investment opportunity available, seeking hard money financing for a home purchase.  Serious inquiries only, PM me for details.”  From this post I had 3 responses, and one of those responses worked out.  We were able to come to an agreement.

If you aren’t familiar with the concept of hard money financing it is a loan typically offered by a private investor, and secured with real estate or some sort of “real” asset.   You are charged a higher interest rate and these types of loans are often interest only and for a short term (6months, 1year, etc).  In my case we borrowed $300K for a term of 1 year @ 10% interest only.

So now you’re thinking whoa!  10%, no way.  Yes way!  Sometimes you need to do what you have to do to get your foot in the door. As long as the numbers work, who cares what the interest rate it.  The numbers worked for us so we went to closing and started what would be our most challenging project to date!

That being said, where there’s a will there is a way.  The challenge we took on almost a year ago has grown $100K in equity and is a successful long-term rental in Key West with a positive cash flow.

Stay tuned for the next post in this series, You’ve Got An Offer, Now What?!…=

Call, text, or email me (305-394-4073 or krystalthomasre@gmail.com) for additional information on how to purchase your first home.  I am a full time buyer’s agent with Preferred Properties and ready to assist you in purchasing your Florida Keys home!

 

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