Steps for Approaching a Lender for a Loan

For real estate projects to be effective, planning and research must be involved. Having the proper paperwork available shows resourcefulness on the part of the borrower, and gives the lender confidence to work with them.

Things to Know About Your Potential Lender

Working with a quality lender is just as important. Before approaching a lender, a potential borrower should research their status as well. A qualified lender should be accredited with the Better Business Bureau. Having other associations such as the American Association of Private Lenders can assure the borrower of a positive outcome for their project needs.

The borrower will need to understand that lenders who specialize in fix and flip or renovation loans will not be able to lend 100% of the needed funds. The borrower will need to show they have enough liquid assets to cover the remaining percentage needed. Generally, these loans are first lien only, so no other lender must be holding a lien over the project.

Generally, these loans are not for owner occupied projects. The borrower will need to be able to prove they do not, and are not planning to live in the property being renovated.

Approaching a Lender for Pre-Approval

  • To approach the lender for a pre-approval amount with no specific property the lender needs:
    • To know if the borrower is partnered with another person, part of a group, or is applying using their information only.
    • All relevant contact information.
    • Listings of any other real estate projects for the last 12 months
    • Listing of any unfinished real estate projects as of the current date
    • Credit Score or credit profile of the borrower
    • Bankruptcies or foreclosures in the last 12 months
    • Amount of cash or liquid funds available
    • Other information may be required per lender

Approaching a Lender for Renovation Loans

  • To approach the lender with the specifics of a project or piece of property and what renovations are planned.
    • The same information needed for pre-approval plus:
      • Appraisal of the Property to determine the current Loan to Value LTV amount
      • Scope of Work needed to complete the renovation or Fix and Flip
      • Estimated costs of all work needed to complete the project
      • Timetable involved for completion of the project
      • Projected sale date or roll over to long term loan
      • Projected After Repair Value ARV
      • Other required information may vary by lender

Other Useful Information to Know

An important aspect involved when approaching a lender is the reputation of the contractors who will be involved with the construction/renovation/repair work. The Lender will need to be secure in the knowledge that experienced qualified professionals will be handling the project.

Not all lenders are in brick and mortar buildings or in the borrower’s local area. Online lenders are reputable and can offer fast approvals, fast turnaround time, and fast closings. Overall, both the borrower and the lender will want to be secure in knowing that doing business together will be successful, so keeping these strategies in mind will only help for the next time an investor is looking for a new lender to apply for a loan with.