When you apply for real estate investment funding. It is important you understand the chain reaction of events that will happen so you can be prepared. This post outlines what happens, what to expect, and how to prepare. Review the guidelines below.
1) YOUR FUNDING REQUEST IS SENT TO THE RIGHT LENDERS.
2) YOUR PHONE WILL RING (during normal business hours) … ANSWER IT!
3) YOU CHOOSE THE LENDER YOU WANT TO WORK WITH.
WHILE YOU ARE WAITING FOR THE PHONE TO RING… GET READY!
When you are getting ready to speak with an asset-based lender about providing funding for an investment property, it is important to understand some of the basic questions a lender will ask. Knowing the answers to the questions outlined below will help ensure you get the funding you need.
1) SNIFF TEST: The first conversation is essentially a “sniff test” for the lender to assess how risky your deal is.
The lenders will need to know…
- How much you can put down toward the property
- How much equity is in the property today
- How much equity will be in the property after improvements
- How much experience you have
2) LOOKING INTO YOU: If your deal passes the lender’s initial sniff test, the lender will start to ask questions about you and the specifics of the contract. What is required varies greatly from lender to lender, however all lenders will need some basic information to move forward.
To get the ball rolling you will need to:
- Complete the Lender’s Application
- Provide Personal Identification (Driver’s License, etc)
- Have a Purchase Agreement (or status of purchase: made offer, considering offer)
- Provide the lender with an As Is Appraisal/CMA or BPO
- Provide the lender with the ARV (After repaired value) of the property
- Request an exact loan amount
- Provide an approximate closing date
3) THE DEAL IS IN THE DETAILS: After passing a lender’s sniff test and providing the necessary documents, it is time to talk property specifics.
Property specific questions the lenders will ask:
- Property Address, Heated SF, Bed/bath, Year Built
- Source of Purchase (wholesaler, distressed sale, foreclosure, short sale, estate, other)
- Cash for deposits & closing fees / Amounts available for cost overruns
- Construction Draw Schedule
- Exit Strategy and Project Timeline
- Expected renovation days
- Expected time on market/Expected Sale Date
- Project partners/principals/agents
- Purchasing Entity (LLC, Corp, LP)
- Closing Attorney/Title Company Information
- Insurance
Some lenders may require more extensive information such as a property inspection, authorization to run a credit report and background check; authorization to obtain IRS tax transcripts; W-2, K-1, or 1099s, copies of bank statements (proof of funds), copies of leases, documentation on the business entity
WHAT MATTERS MOST TO THE ASSET BASED LENDER: The investor’s credit isn’t as important as the quality of the deal. Numbers matter, but in most cases, not your FICO score.