Sometimes, borrowers have the best of intentions but lack the industry expertise to swiftly navigate the ebb and flow of the market’s products. There is a certain foresight one develops that affords a seasoned loan officer to provide expert advice coupled with current product knowledge to produce a closing which benefits both the bank and the borrower.
The old motto, ‘be prepared’ certainly applies to lending in today’s market. Oftentimes I receive calls from clients who think they simply call the lender and sign a document to refinance their property.
I’ve often said that I think people believe the lender is sitting there waiting with an ‘approved ‘ or ‘declined’ stamp at the ready for each application that walk into their office. If only it were that simple.
Are you a good Boy Scout?
Lenders today are looking for the borrower who is prepared and proactive with their loan package. You remember how it was when you were a kid going to camp….you packed a pillow, hiking boots, compass, flashlight…well…you get the idea. The same goes for lending. Lenders require the following on their loan submissions;
- Borrower PFS (personal financial statement)
- Current Rent Roll
- YTD PnL
- 3 Years Tax Returns
The above are just the basics and can vary a bit depending on the property type, number of borrowers, and the like.
The first and possibly most important is a thorough personal financial statement. This tells the lender who you are…sort of a financial snapshot of your cash flow and holdings. It lists all of your assets and liabilities, as well as all of your current real estate. I recently had a client fill out our PFS template without reading it and ended up telling us that he was not a US citizen when in deed he was and is. A simple check marked under a ‘yes’ or ‘no’ can make a fatal error on your application and can decline an otherwise quality loan. Good thing we reviewed the document prior to final submission!
The rent roll must be current and legible….again legible…enough said.
Photos should be clear and free of any foreign objects…please no junk cars, single wide airstreams or overflowing trash cans in view. It speaks volumes to an underwriter to pull out his approval stamp when the place looks just as great as it cash flows.
The tax returns should show the same income, matching the PnL. When the PnL shows an NOI of
$500,000.00 but the tax returns show a negative cash flow, you can bank on the property being denied the loan.
In addition to the above list, we are looking for fully executed purchase contracts. Case in point, I had a broker call me with a purchase for $5,500,000.00 this week with all of the items on the list. I was ready to proceed with the lender but when asked about the purchase contract, we were informed they were still negotiating the details. Bad Boy Scout…bad! When you represent a transaction to a lender on a purchase, please be done with all negotiations. Don’t present it as a closed contract only to make the lender wait for signatures that could be a month away. They have provided terms based on the current market and rates change daily and programs are discontinued weekly.
Be prepared…Be a good Boy Scout!