One of the major complaints about real estate investment lenders is how long they take to close a loan. However, you can help your lender move things more quickly along by preparing properly.
Follow these next few tips when you engage with your real estate funder, be it the bank, an alternative lender, or a hard money or private lender, to help make the lending process go more smoothly, with faster closings and often, preferred loan pricing.
Have a deal under contract (or be close to getting it under contract)
For a real estate investment lender to be able to provide you with accurate pricing on funding rates and terms, they need to have the real estate investment (asset) available to review.
This is especially true for asset-based lenders like alternative lender i Fund Cities, hard money lenders, or private money lenders. They want to see your real estate investment project, and they want to know you either control it, already have it under contract, or are close to getting it under contract, so they can provide you with good pricing and information regarding your investment project.
Get your documentation in order
As we discussed, the underwriting documentation (and the weight your real estate investment lender puts on each piece of documentation in relation to your investment loan) will be different depending on your chosen lender.
General real estate funding loan documentation includes:
Contract Information: Agreement of Sale, or your Wholesale/Assignment Agreement.
Entity information: EIN/IRS Letter, Articles of the Corporation, Operating Agreement for LLC. (Note: Is your entity registered in the state in which you are doing business? If not, this may be necessary.)
Liquidity statements: Bank statements and tax returns for two to three years.
Project Information: Proforma, which is your own underwriting spreadsheet that shows how you figured your project costs, income, and profit (see link below to our Deal Analysis Spreadsheet, a free tool for this purpose), a clean contractor’s estimate for construction or repairs, a project timeline that shows your requested loan draws and estimated completion date.
We have the perfect tool to help you get your project costs dialed in.
Download our Free
This spreadsheet will help you see what we here at i Fund Cities
use to understand deals of 1 to 4 units.
Depending on the scope of your project, your lender may also request building plans and specs, property surveys, etc.
Title: It is helpful if the real estate funder can control the title process, but if that is not possible, then you will want to make an introduction between your investment lender and your real estate title agent.
Insurance: Make sure you understand what your insurance options are for your real estate investment project. Talk with your insurance agent to find out what type of insurance you will need and be sure to include these costs in your proforma.
Identification: Driver’s license or passport.
Do yourself a favor and create a “Real Estate Financing” folder on your computer, so that when you are talking to different real estate lenders, you have that information all together to send out to them. That will help your investment lender speed up the closing process.
Be able to explain your real estate experience
Whatever your real estate experience, be ready to document your role within a fix and flip project, a new construction or multifamily project, or in wholesaling, for your real estate investment lender.
This will help convince your real estate funder that they should lend you money for your investment project at a preferred rate.
Call us today to learn how to get the lowest loan rates!
Know basic lending terminology
When your real estate investment lender says, “We would probably be looking at a loan at 70% loan to value – would that work for you?” What will you say?
When you talk with your investment lender, you are going to hear some basic real estate terms like After Repair Value, Loan to Cost, Loan to Value, and Recourse or Non-Recourse loans.
These terms are the real estate funder’s “language,” and they are important, because using these real estate terms is how they define how much money they can offer you on your investment project.
*After Repair Value (ARV)– You will for sure need to know this term! The After Repair Value (ARV) estimates the future value of a distressed property after it has been repaired. Do not get confused. The ARV is not a property’s current value when purchased but rather the estimated value of the property once improvements are made.
*Loan-to-Cost (LTC): A lending term that compares the property loan amount to the overall cost of the project. The calculation is: Loan Amount/Construction Cost.
For a project costing $1M, a loan amount of $800K would be an LTC of 80%. The higher the LTC, the higher the risk for the lender. Why? Because the borrower has less of their own money invested, and so there is a higher risk they could default on the loan.
*Loan-to-Value Ratio – A lending term that compares the amount of a property that is financed to the value of the project. The calculation is: Loan Amount/Project Value.
For a project valued at $1M, a loan amount of $900K would be an LTV of 90%. The higher the LTV, the higher the risk for the lender.
*Recourse and Non-Recourse Loans – These loan terms define whether, in the event of foreclosure on a funded property, the lender can pursue a borrower’s additional assets, if the foreclosed property does not satisfy the loan amount. On a “recourse” loan, the lender can do this, on a “non-recourse” loan, they cannot.
These are just a few of the basic real estate terms your investment lender will use.
From “Acceleration Clause” to “Diversified Capital Stack,” to “PITI” and “Usury,” it is really helpful to understand lending terminology when you talk with your lenders.
Here is a link to our Free and Downloadable
Take the time to glance through it and keep it handy when you are talking with your lender.
Understand the Funding Process
The real estate funding process can be quick and easy if you understand how the lending process works.
For example, at alternative lender i Fund Cities, here is how it goes:
- Get a quote: Fill out our real estate investment deal form (about two minutes). Submit it. We will contact you.
- Accept the terms: After we have all your real estate investment project details, we will issue you preliminary pricing for your review. If you wish to move forward, we will provide you with a formal term sheet. Sign and we will kick things into high gear.
- Let’s get to work: We collect the agreement of sale, construction budget, title, and insurance information. Then we order your real estate property appraisal.
- Provide supporting documentation: Lending paperwork sucks, but we are here to help you along the way.
- Close: We work with you to get your real estate investment loan closed quickly. By providing us with all other supporting documents in a timely fashion, you can close within just seven days.
That’s it for today, Investor Nation.
If you have a deal you need funded, give us a call!
The iFC Team
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