Finding the Right Lender for You
Building Lasting Relationships
When trying to increase your passive income, it’s important to remember that hardly anyone makes money all by themself — it usually takes several players involved. That’s why building lasting relationships, based on loyalty and the desire to grow together, is critical in the world of investment real estate. Having a knowledgeable and proactive team by your side is a surefire way to grow your wealth.
But who should you recruit? What bonds will prove to be lucrative come offer or closing time? Obviously, arming yourself with the best agent, title company, and attorneys will, undoubtedly, drastically improve your bottom line. But don’t forget about your lender!
Lenders — like real estate agents — rely heavily on the interpersonal relationships they form when lending money and loyalty goes a long way. If you form a strong connection with a lender, you will likely work with them for life — securing yourself the best deals for years to come.
What makes a lender the right one for you?
When looking for a lender, you want someone who can evaluate what it is you truly need. Every situation, seller, buyer, and transaction is different, so you need a lender who will take the time to listen to your financial goals and advise you.
For example, let’s say you are an investor who gets paid primarily in cash, but you might not be recording all of it. In order to get a loan, you need to be able to produce your income, so what do you do? A great lender will work with you to find programs for unverified income. The same goes for credit. While credit is obviously a factor in obtaining a loan, it’s not the only thing a lender will look at. If your credit is a little lower than desired, but you meet other requirements, your lender should work with you to find the financing.
In short, when shopping for a lender you want to make sure:
Your lender is a great listener — They should be specifically honing in on what is it you need and advise you on the best financing programs available.
Your lender is seasoned & knowledgeable — This is not to say newer lenders aren’t great at their job, but the more years your lender has in business, likely means they’ve seen a variety of investors, purchases, and loans. There should never be any ‘guesswork’ in this industry. If they are successfully securing loans for investors, that’s a good sign.
Your lender always works to find a solution — their thought process should always be, ‘How can I help this investor get the financing they need?’
Your lender works quickly — If you apply for a loan and you’re waiting several days to hear back from your lender, find a new one. With how quickly properties go under contract, you almost always need to act fast. Getting a loan approval will allow you to offer quickly, securing the best on-market deals.
Your lender doesn’t operate like a large bank — Big chain banks typically have a more rigid approval process and their turnaround times are slower. Going to a smaller lender should eliminate these issues and provide the personalized service you need.
Your lender has worked in the community — Being in tune with the community, values of homes, and the fluctuating market conditions is helpful when assessing the value of your assets and your potential purchase.
So, where do you find this kind of lender? It’s best to get referrals from other investors, your real estate agent, and possibly your attorney. If you are working with an experienced agent, they will have definitely have resources and connections you can rely on.
What do lenders look for in clients?
When you’re applying for a loan, you want to come prepared with all the necessary documents. Depending on the loan you are applying for, your lender will be looking for —
Credit score — You’ve definitely heard that this is an important part of securing a loan — and it is, but it’s not everything. Great lenders will look at the whole picture and if this is a hurdle for you, ask the lender for suggestions on improving your score.
Savings — Lenders will need to see how much money you have saved before purchasing. They will also want to see reserves built up at closing. Six months of principal and interest payments in the bank is generally the baseline.
Good liquidity —- Your liquidity is your available assets and cash. The more, the better.
Experience in investing — Your lender may take a look at what other investments you have and how long you’ve been in the game. This does not necessarily mean they won’t lend to you for your first property. If it is your first property, however, they will likely advise you to start small and slowly scale up. Having an experienced property manager will aid you in this area. Lenders do not like to take risks. They want to see that you have a well thought out plan for investing which includes hiring a property manager that is an expert in the market you intend to invest in.
Partnerships — Sometimes having a partner can help you secure a loan. More income equals more buying power. However all parties must be bankable. You will want to make sure your partner can add value to the partnership in this area if you intend to secure loans together.
Ultimately lenders want you to keep making money so you keep buying new properties but they will also make sure you are buying the right investments and paying your debt as agreed.
You can secure a lasting relationship with your lender by remembering that this is a mutually beneficial relationship — they, too, are looking for a reasonable return on their time. If you are disorganized or they need to chase you for documents required to fund a loan, you can expect they will likely pass on future business with you. Long story short, find a great reputable team that works well together so everyone on the team — you included! — will win!