There is no “magic” or “secret sauce” to getting your investor’s loan approved! Why do so many get “rejected” and think it’s a matter of random luck? Because they don’t know how to score big with the loan approval gatekeepers- like your about to get it, girl! 💄
The Big Picture!
Let’s start with the Big Picture here. If you grasp this part you are more likely off to 5 stars! As with everything in life, just for a second stop thinking about your needs and put yourself into the other person’s heels 👠. The traditional bank, hard money lender, soft money lender or private investor is trying really hard to help you. Why? Because they help themselves by helping you. They want to get your loan approved and give you the money. They really do! Whenever they do so successfully, they get bank (=get paid) capiche?! Their earnings are tide to your payments and your ability to successfully keep paying them interest 💰.
They are not the enemy, so work with them. Even the notorious “underwriter”, risk expert of the financial world, just wants to get you fit in the secure “risk” box, so she can get your application approved and get her commission too! 🧐
So how can you help them succeed? Make their job a breeze! Make it a no brainer. Deliver exactly what they are looking for, in the best possible way you can present it. Wow them like with that Instagram Perfect Picture Filter Factor! 🤗 Let’s dig in…
The 2 Stars Rating System
Let’s check out the 2 common stars of the loan approval rating system and see how they can help you get approved. Lenders may use some or all of these characteristics to determine your creditworthiness before approving a loan, some may even carry additional criteria of their own. How to uncover them all? Ask. Yes simply ask for all their conditions before even applying for a loan.
1. Personal Financial Score ✔
2. Property - Loan Financial Score ✔
1. Personal Financial Score
Within the financial world, your key metric is your “Personal Financial Position” which is measured by your credit score. A credit score is a three-digit number that reflects the information in the corresponding credit report. Knowing what goes into your credit scores and reports can be the first step to improving them so that you can make a good impression on potential lenders. A good credit score makes all the difference in getting approved for a loan, a line of credit & better interest rates!
Check your credit reports with TransUnion, Credit Karma and Equifax (it’s free). Any other consumer credit bureaus your lender might use will have similar results. Verify that all the information is accurate, current and debate any errors you find!
Check your credit scores and get an accurate view of your credit.
Check your lenders score’s categories. Some lenders group scores into ranges. If your scores are close to a higher & less expensive rate category, it pays off to improve your score:
Pay your bills (on time); Fix your Credit Score by making many small purchases (like daily coffee) with your credit card and pay in full each month. Transfer high rate loans to an interest-free credit card, all payments will go to lowering your debt instead of interest.
Pay down debt; Your credit utilization ratio compares the amount of debt you owe to the amount of credit you have (best below 30%). Lenders want to make sure you’re not borrowing more than you can afford to pay back. This is probably the second most important criterion to fix & score on.
Diversify your credit mix; a mix of revolving credit accounts (credit cards) and installment loans (mortgages, car loans, student loans). Lenders want to see a "healthy" mix. This means that you can handle your accounts well.
Too many new credit cards at the same time; lowers your score and sets a red flag for lenders.
Keep old credit cards; The length of your credit history is a significant factor in most credit scores. Most credit scoring models look at the average age of all your accounts and the age of your oldest open account. Don’t close them, keep them just don’t use them excessively. See them as a useful tool to make a star ranking!
Your repayment capability is based on your financial ability to repay the mortgage, usually measured by income or employment. Also known as the Debt to Income Ratio. The other factor they’ll likely assess in relation to your income or employment is the longevity of your income or employment to proof stability and consistency. Lenders may review:
Tax returns for the previous 2 years
W2s for previous 2 years/ Or at least 2 Years of Being an Investor (Accredited)
Pay stubs for the previous 2 months
A personal financial statement
Purchase and Sale documents for the property
Descriptions of all your properties in the portfolio
Present all these requirements, exactly as they ask, in an organized and easily accessible way. Be creative only with the presentation, use an organizer with a professional cover, present it all like you would a beautiful, professional, glossy pro forma. Here is where you have room to Wow 🤗 your lender, remember she wants to give you the money. Make it easy for her to trust your competency and do so!
Capital or Cash Reserves is the “liquid” money you have besides investments, properties and other assets you could quickly liquidate. A cash cushion if you will as a warranty for the number of payments you have with the lender.
Ask for the expected cash reserve amount. Ask potential lenders how much money in your bank accounts they want to see to qualify.
2. Property Loan Financial Score
With Commercial Real Estate as opposed to Residential Real Estate, the Personal Financial Score becomes less critical because of the Net Operating Income (NOI). The NOI is the ability of the property to pay for itself! In this case, the profitability elements of the property itself will be more crucial to the loan approval. Other Indicators are Debt Service Coverage Ratio (the room for rents to drop before the property defaults) & Loan To Value Ratio (the “equity” - meat on the bones - of the property against the loan).
Lenders may also look at your Debt to Income Ratio (DTI ratio). This metric helps them evaluate how much additional debt you can handle and how much of a credit risk you pose. The indicators must answer the lender’s concern of risk and the loan ease of recovery in case of a foreclosure.
Property Type; Some lenders only loan on certain types of property (A, B, C, D). So the first thing you should ask the lender is what kind of property will qualify for loans?
Property Location; Lenders have certain locations (A, B, C, D) they will and will not lend in. Be sure that your lender is okay with the location of your property.
Property Condition as Collateral; Lenders will only loan on a property in great condition. Why? Because they want to ensure that the property can be sold if they needed to foreclose.
Loan Amount (Loan To Value Ratio)
Use Calc Like A Pro Tool to make and present a great analysis report on your property. You will come across more professional because you proof that you understand your profitability (success) indicators and that you strive to be a trustworthy partner that can secure future payments.
Profitability and ratio’s provided by Calc Like A Pro are Return on Investment, Internal Rate of Return, Return on Asset, Return on Equity, Cash on Cash, Capitalization Rate, Break Even Ratio, Rent to Value Ratio, Net Rental Yield Ratio, Rent to Cost Ratio, Debt Service Coverage Ratio, Loan To Value Ratio, Gross Rent Multiplier on a Multiple Year Analysis. Download A Full Demo Analysis Report here!
When shopping around, investigate a variety of lending sources: look at large and independent banks, credit unions, mortgage companies, soft and hard money lenders. Always ask what types of loans they can offer. Make sure you have a checklist for all the points that are important to you — like rates, collateral, capital reserves, DTIs and credit score requirements and the property as collateral. Don’t skip small local banks they often have surprisingly lower requirements and better offers.
Put your requirements in place, get your loans approved and reach for the stars!