By Douglas Katz – 05/15/2023
In the world of investment real estate lending, the speed of action is a crucial factor that can significantly impact the success of investors. A fast loan process allows investors to seize time-sensitive opportunities, secure attractive properties, and maximize their returns. In fact, the top three things people ask me about are rate, leverage and timeline. The latter is usually inconceivably short in nature and without any flex or possibility of extension. My answer is always prefaced with the one simple qualifier – if you do your part.
While lenders play a pivotal role in managing and sometimes expediting the process, borrowers have the power to supercharge or sabotage the speed of delivery through several client-dependent factors. I say sabotage because when they don’t do what they need to do, a borrowers timeline can get blown. You would be amazed at how many investors contact me with the need for immediacy only to delay in responses to and requests for clarification or documentation. You can guess that in those situations the expectations and outcomes rarely align. These are self inflicted wounds and no lender, no matter how good, can overcome this challenge.
Client-Dependent Factors Influencing Speed of Delivery
So your outcomes will be directly influenced by your commitment to the process and, in turn, your commitment to your own success. While lenders have control over many aspects of the loan process, borrowers make a significant difference by focusing on their lane as it were. The best part is that these are simple and intuitive and for most easy to perform.
A smooth loan process in investment real estate lending hinges on the borrower providing complete and accurate documentation. You, as the borrower, play a vital role in expediting the process by compiling all the necessary financial statements, tax returns, property information, and other relevant paperwork in advance. Remember, there is no way to evaluate a loan file without a file to evaluate. Taking a proactive approach to documentation preparation minimizes delays that may arise from missing or incomplete information, ensuring a streamlined and efficient loan process.
- Gather and organize all necessary documentation: Create a comprehensive checklist of required documents and gather them in advance. This may include recent tax returns, bank statements, financial statements, lease agreements, property insurance information, and property appraisal reports. Having all the necessary paperwork ready at the beginning of the process avoids delays caused by hunting down missing documents later on.
- Ensure completeness and accuracy: Double-check all documents to ensure they are complete and accurate. Incomplete or incorrect information can lead to additional requests for clarification or documentation, causing delays.
- Collaborate with the lender: Reach out to your lender early on to understand their specific documentation requirements. By proactively addressing any potential concerns or questions regarding the documentation, you can demonstrate your commitment to a smooth and efficient loan process.
This one is less intuitive than the others but no less important. A strong financial position bolsters the strength of your file and is instrumental in expediting the loan process. Having worked at the executive level of an investment real estate lender several years ago, I saw what can happen when deals are triaged. If a deal is well put together and is a strong borrower, the underwriter can more swiftly decision the file. Most work from checklists that cover the previous bullet as well as the file summary covering the strength of the borrower. Files with issues will likely be suspended, while those files with stronger merit move faster.
Borrowers who showcase a solid financial foundation increase their chances of securing a loan swiftly. This can be accomplished by demonstrating a good credit history, maintaining a healthy debt-to-income ratio, and having a sizable down payment or equity in the property. Your goal should be to create a financial picture that provides a confidence in your ability to repay. Loan processing and approval is an objective process which measures financial strength. Understanding that your lender will look to past behavior, you want to exhibit past financial responsibility. Here are some basic ways.
- Maintain a strong credit history: Make sure you have a good credit history by paying bills and outstanding debts on time. A higher credit score increases your chances of loan approval and can expedite the lender’s decision-making process.
- Manage debt-to-income ratio: Keep your debt-to-income ratio within acceptable limits. Lenders typically prefer borrowers with a lower ratio, as it indicates a better ability to manage debt and meet loan obligations. Minimizing outstanding debts or increasing your income can help improve your debt-to-income ratio.
- Prepare a sizable down payment or equity: Offering a substantial down payment or having significant equity in the property you wish to purchase demonstrates your commitment and reduces the lender’s risk. This can instill confidence in the lender and potentially speed up the approval process.
Efficiency and responsiveness are key factors that borrowers can leverage to enhance the speed of their investment real estate lending process. By maintaining a well-organized approach and being highly responsive throughout the loan journey, borrowers can significantly expedite the overall timeline. This involves promptly addressing lender requests for additional information, arranging inspections or appraisals in a timely manner, and being readily available for discussions or negotiations. Proactive engagement on these fronts can have a tangible impact on expediting the loan process. Now, let’s explore further client-dependent factors that borrowers can focus on to optimize the speed of their loan.
- Be responsive and readily available: Promptly respond to any requests from the lender, whether it’s providing additional information, clarifying details, or signing documents. Timely responses can help prevent unnecessary delays in the loan process.
- Coordinate property assessments efficiently: Schedule property inspections, appraisals, and other required assessments promptly to avoid delays. Research and identify reputable service providers in advance to ensure their availability when needed.
- Implement a document management system: Use digital tools or platforms to organize and store your loan-related documents securely. Having an efficient system in place saves time by allowing quick retrieval of information when required.
Building a strong relationship with the lender is a strategic approach that can significantly influence the speed of the investment real estate lending process. By establishing a solid rapport, borrowers can create an environment conducive to expediting the loan process. You will achieve this by maintaining open lines of communication, actively seeking to understand the lender’s requirements, and promptly addressing any concerns that arise.
Cultivating a collaborative relationship with the lender fosters a sense of cooperation and can potentially accelerate the decision-making process. In fact, many lenders in the space look to build habitual relationships with strong borrower because it makes sense for them as well. For lenders, resource allocation is important and strong, loyal and lower-maintenance clients means that they can better allocate their resources to productive endeavors instead of managing difficult clients. You will even see volume pricing discounts to incent investors to build these relationships.
- Establish open lines of communication: Build a rapport with your lender by maintaining open and transparent communication throughout the loan process. Seek regular updates and communicate any concerns or questions promptly.
- Understand the lender’s requirements: Take the time to thoroughly understand the lender’s specific requirements, loan terms, and processes. By aligning your actions with their expectations, you can minimize misunderstandings and delays.
- Address concerns promptly: If the lender raises any concerns or requests additional information, address them promptly and provide the necessary clarifications or documents. Proactively resolving issues demonstrates your commitment and can expedite the decision-making process.
Instead of passively waiting for updates, borrowers can and should take an active role in driving the loan process forward. Granted a good lender will always keep you in the loop on important updated and milestones, but this should always be a mutual effort. Bi-directional communication minimizes issues and catches problems early. If the update a lender’s update is missing something seek clarity on any issues or concerns, and ensuring. This ensures that all parties are aligned and working towards the same goal can help keep the process on track. Here are some things that you can do.
- Regularly follow up with the lender: Maintain regular communication with your lender to stay updated on the progress of your loan application. Politely inquire about any pending tasks or outstanding requirements, and express your eagerness to move the process forward.
- Provide requested information promptly: If the lender requires additional information or documentation, respond quickly and provide the requested items as soon as possible. Timely compliance with their requests expedites the evaluation process and keeps the loan application moving forward.
- Actively participate in discussions and negotiations: Engage in productive discussions with the lender regarding loan terms, conditions, or any other relevant matters. Demonstrate your willingness to cooperate and find mutually agreeable solutions, helping
Own Your Loan
How fast can you close my deal? This is the question you will ask your lenders at some point in your real estate investing career. After all, in investment real estate lending, speed of delivery plays a critical role in your ability to seize opportunities, enhance their competitiveness, and maximize their returns. While lenders have a significant role to play, borrowers can actively contribute to expediting the loan process through client-dependent factors. By focusing on documentation preparation, maintaining a strong financial position, staying organized and responsive, building relationships, and taking a proactive approach, borrowers can enhance. While completely valid and even wise to ask a lender about their ability to close, it is also a good idea to ask yourself how committed to a fast closing YOU are?