While it may seem like the most tedious and uninteresting part of the entire investment process, understanding how to approach a loan application (and bracing yourself for all possible questions and outcomes when meeting with lenders) will surely put you on the right track to getting your first, fifth, or tenth investment loan. After all, making the decision to invest in real estate is the easy part; putting your best foot forward to get from point A to point B can be tricky.
What documents do you need when preparing to meet and discuss with an interested lender?
Business plan and strategy
It’s not enough to go into a meeting and say you’ve always wanted to flip homes or own an apartment complex. Sitting down with a lender and holding a conversation that doesn’t make the investment plan feel like a fleeting interest or hobby is critical to not only being approved for a loan, but also being taken as a serious businessperson.
A lender who feels that a prospective investor has done their homework, has thought about the questions, and has a clear vision for their portfolio will be far more likely to approve an application, so don’t let your business outline slip through the cracks.
Everything from the amount of equity you’ll have in the property (i.e. your down payment), to how much money you have in cash reserves, being transparent with the lender, even when it’s a necessary step in the process more so than an option, is critical to determining the investment loan you’ll receive – or if you’re worth being given a loan at all.
In the same vein as having a rock-solid business plan, investors want to see a plan for the future. How do you plan to make money off a specific property? Is the plan feasible or will the lender(s) be left in the lurch when waiting for you to pay back the loan?
These are all critical questions that should be thought of well in advance and addressed before sitting down to speak with any lender.
Your credit score is a good way for lenders to measure your reliability in handling a substantial loan and paying it back. A high score can potentially speed up the approval process since it tells a lender you are a qualified borrower. Alternatively, a low score can seriously impact your qualifications for a loan, nipping investment plans in the bud and putting them on a momentary halt. Moreover, if you are ultimately approved for a loan, your score can affect the terms presented by the lender, as well as the interest rates.
Lenders want to feel that they’re putting money towards someone who ‘gets it’ – someone who understands what is expected out of the partnership, who has a strong investment plan in place, and someone who can demonstrate that they’ve done this before. The more experience you have as an investor – the more expansive your portfolio – the greater the likelihood that a lender is willing to work with you and fund your next project(s).
Now, that’s not to say a new investor has no shot at obtaining a loan. Come to the table with a clear investment plan and overall business scope and be transparent about your experience (or lack thereof) and what your goals are. The right lender will connect with the vision, and assuming other important criteria (i.e. credit score) are all in line, you’re bound to get your first shot at investing in real estate.
Finding a lender who is as invested in your portfolio and investment vision is critical to seeing a project through successfully. After all, no one wants to partner with someone who doesn’t believe in or want to understand the big picture. If you are ready to explore your loan options with a qualified lender, contact Temple View today.