If you are a real estate investor, it's not news to you that credit is tight. Since mid-2008, real estate investors have seen conventional loan options evaporate. Many have turned to private (hard) money loans to fund purchases or to pull cash out of a property with equity. However, with ever-increasing "doom and gloom" economic news, even many private lenders are now pulling back on lending. Here are some reasons why:
Many private money lenders have mortgage pools as their primary source of funds - pooled capital from investors which the manager of the fund (the broker) loans out. Many of these pools have seen their yields go way down due to non-performing loans in the portfolio. A result is that many of the pool investors then want their money out, resulting in the pool having no new funds to lend. Other private money lenders, like us, originate loans funded by individual investors, who fund a specific loan on a specific property (i.e. an individual trust deed). The ability of the broker to fund loans is based on the individual risk tolerances and appetites of the brokers' investor base. What we're finding now is that, many loans that we could have easily funded just a year ago are no longer of interest to a growing number of our investors. In the face of growing investor-lender fear, how can you, as someone looking to take advantage of market opportunities, make your best case on a hard money loan request?
- Be prepared to sell yourself. The more compelling your story, the better your chances. Create a written Executive Summary for your proposal. Use correct grammar and spell check. Be prepared to include such details as the project summary, the exit strategy, your experience, your strengths, your team, references, etc. Answer the question "Why should we fund your loan?"
- Don't say you need the money by Friday. As brokers, we hate that. I don't care what a brokers' ad says, quick fundings are rare, especially now with all the investor fear.
- Be prepared to document your income and credit. The days of "equity-only" loans are past. We now have a fiduciary responsibility to our investors to investigate our borrowers. If your credit has taken a hit, explain why. The more information you have gathered up front, the easier it makes it for us to approve your loan. Bank statements, 401k statements, W-2's, etc.
Spend the time to develop as complete a "Loan Package" as possible up front. This makes it easier for a lender to quickly analyze and greenlight your loan application. For more information and articles on packaging your loan request send me an email.
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