1. Find a lender 1st –
So many borrowers are doing steps 1 and 3 backwards. You need to know you have a lender or lenders before going to find a property. What good is a great deal that you can’t close on because you don’t have the financial backing. Too many potential investors are taught the “if you build it, they will come” philosophy. This is the furthest from the truth. Just because you have a deal doesn’t always mean you will close it no matter how good the deal. If you don’t have a good knowledge of what programs are available in the area before looking for a property and getting it under contract, you might find yourself letting that contract expire or trying to wholesale it. Know what is available to you, how much you will need to put in the deal out of pocket, the maximum loan to values and the cost of the money then move to step 2.
2.Get a proof of funds letter –
You should have this in hand after talking to a lender or potential lenders. Realtors and seller will actually take you seriously if you come with this in hand as they know you have the financial backing to actually close the deal you get under contract. Don’t be surprised if your lenders asks you for a small fee to issue the letter as their time is money as well, and not every letter they issue turns into a loan. They will usually refund this small cost to you at closing.
3.Find a property
a. Value – do not comp against the highest sales in the area only
b. Most hard money lenders are conservative in their values to ensure their money is safe
c. All lenders will always do their own property valuation to determine what they feel is the “actual” value of your property. It doesn’t do any good to overstate what you think the value is just to try and make the deal work. This is one of the biggest deal killers!!
4. Verify the lender can actually perform – whats their sweet spot, direct lender vs lender rep
There are 2 types of lenders – Direct lenders and Hard Money Brokers. Direct lenders will fund your deal out of their own pocket or control a fund that lends money. Hard Money Brokers will match you with the money. Many Hard Money brokers have their own trust deed or private investors that lend money through them.
5. .Make sure you have a solid exit plan
a. What is your exit strategy?
b. Sell or Refinance?
c. How long will your project take to complete?
d. Are the numbers and timeline to complete realistic?
e. How will you pay the lender back before the end of the term ?
f. Selling the property is great, but what if you cant sell? Then how will you pay the loan back in full at the end of the term?
Lenders want to know one thing – how feasible is it that you will be able to pay the loan back prior to the end of the loan term
6 .Figure out what the loan will cost you and your profit in the potential deal
a. Do you have a deal spreadsheet ?
b. Does it factor in all costs that are associated with your deal?
Purchase price, Rehab costs, monthly debt payments, points, title fees, realtor fees, attorney fees, recording fees, property taxes, insurance
7. .Make sure your contractor can actually perform on time
– ask for refrences, pictures of recent properties the just completed working on.
8. Figure out what you can bring to the deal besides just the deal itself –
skin, credit, experience, solid plan
9. If you have never done a deal before, don’t have a track record UNDER YOUR NAME, I would suggest not trying to negotiate rates and points when you don’t have a relationship with that lender.
Want to turn a lender off on your deals? Ask him to lower his rates and points on the 1st call!
10. Always look at the list of documents your lender is requiring and ONLY SUBMIT WHAT IS ON THAT LIST.
Do you want to know what really turns a lender off? One that actually sees a lot of deals? When borrowers flood the lender with email after email, and documents that were not requested. All Lenders have their own list of items that they would like to see on their deals. Make sure you read that list, and only submit what is asked for. I would suggest if you will be emailing your deals to the lender, figure out how to use zip files, dropbox or any other cloud sharing program. There is nothing worse than 10 emails with one attachment in each.
11. Make sure the lender, title company, your attorney and the seller are all on the same page for a closing date.
The worst thing you can do is tell the seller your closing and then spring it the day before on the lender.