Do You Know the 3 Big Criteria for Property Loan Approvals?
Finding the right financing can make the difference between reaping dividends and barely breaking even on a deal in some cases. Even when it’s a little less important than that, your choice of loans and the terms you are offered play a big role in your ability to grow your portfolio. The first step to making sure you get fast approvals on loans with great rates and terms are understanding how banks make those determinations. While different lenders and loan products prioritize these three criteria according to their own needs, they are still considered for practically all loan and credit products.
1. Cash Savings and Income
Does the borrower have the money to pay the loan back? That’s the first question any lender has to consider. Most of the time, it’s not going to be the case that you have enough cash on hand to cover the whole loan because most people who do have that cash would use it. Instead, the bank looks at your overall financial health, including your income and debt overhead. That allows the lender to determine whether you can afford the payments now and whether you will be likely to afford them if you’re approved for a commercial real estate loan.
2. Credit Scores and History
Your likelihood of repaying the loan is weighed separately from your ability to do so, and that is what your credit score is all about when you get down to the nuts and bolts of it. The information from a credit report helps to calculate your remaining disposable income after accounting for existing debts, but its real power is its ability to show lenders how frequently you make late payments and whether you have defaulted on any loans in the recent past. If you do not have a business credit score, most lenders will consider your personal score as an independent investor or entrepreneur.
3. Collateral Available To Secure the Debt
This last item is often the most important to private lenders. While they are never going to approve a loan for borrowers without qualifying income, good collateral can change what counts as qualifying income considerably, and that is why it is often viewed as the most important part of getting approved for a commercial real estate loan. Most often, the property being purchased is the collateral, but not always. You can use cash-out financing products like a stated income loan to get capital from the equity in your current investments and then use that to buy properties, providing investors with more and more options as they accrue more long-term holdings.