by Katherine Santiago
As a real estate investor, a key component in your success is the type of lender you decide to work with. Selecting a lender for your next big real estate project may be overwhelming. To help you, here are 7 important questions you should be asking:
1. How much experience do they have working with investors?
As many lenders may only want to work with real estate investors who have a great deal of experience, it’s also vital for you to know their experience. You want to avoid speaking with loan officers who don’t traditionally work with investors — and may feed you incorrect information. As a real estate investor, you should make sure you are doing business with lenders that focus on investor based loans, as opposed to working with traditional banks. Why? Because traditional banks may not understand how investors operate.
2. What kind of lender are they?
There are various types lenders to choose from — banks, hard money lenders, private money lenders, etc. This may go without saying, but distinct lenders come with distinct terms. For example, interest rates and points are two important terms that you should really have your lender elaborate on before making your decision. Although traditional or conventional banks may have lower costs, they may be more conservative in their underwriting, decision-making, and leverage. Hard money or private lenders have the ability to operate more rapidly, may approve your loan more easily, and typically provide more leverage. So, explore different lenders and find the one that is suitable for YOU.
3. How fast can they turn around a loan?
This is a big question to ask when selecting a lender for your next real estate project. You should know if that lender can pre-approve loans and how quickly they can process documentations. As an investor, your primary concern is gaining capital on your investments and in order to do that, some of your deals may require you to move quickly and close fast.
4. What are their fees?
Fees will vary depending on the type of loan you are taking. Make sure that your lender provides you with everything you need to know in writing. Ask yourself: are they including and quoting all the fees? Your fees can change for various reasons, so to make sure there are no surprises, ask for a term sheet.
5. Do they have specific property and loan guidelines and requirements?
When sitting down with your lender, keep in mind that some lenders only offer funds for specific properties. Many lenders also have very specific loan criteria and may only offer funds to those in certain geographic locations. Other loan criteria to keep your eye out for is the amount of renovations they allow. Their guidelines may also change based on your qualifications. Make sure you know what the specific guidelines are that may affect your loan terms and pricing because as mentioned, lenders have various nuance guidelines, which may affect your approval/terms.
6. What are their credit requirements?
Your credit score may have a major impact on your loan approval, as some lenders will lend based on your financial background. Your score may influence the type of loan you are approved for and the interest rate you receive. You may only be eligible to receive low interest rates if your credit score is fairly high.
7. Do they provide funds for renovation costs?
If your deal requires comprehensive repairs, then working with a lender who will provide the funds for those repairs is essential. Otherwise, you’ll have to bring money upfront to acquire the property, as well as fund all of the necessary renovations out of pocket. If you are working with a lender that provides financing for renovation costs, you’ll be able to get reimbursed for your renovations throughout the project. Remember to ask your lender what specific rehab costs the loan will finance, how you will be required to demonstrate the rehab process, as well as how involved they will be throughout that rehab process.
We hope you find these questions helpful in deciding which lender aligns best with your goals for your real estate project. If you have any questions regarding your investment project, we’re here to help.