What You Need to Know About Financing

Securing real estate financing form a lending institution is never easy. The economic downturn has made it even more difficult. If you are a first-time borrower the lender will not be willing to provide you a loan unless he is thoroughly satisfied about your credit worthiness. There are some steps that you might take before applying for a financing in order to secure the loan.

First of all you must know what the lender is looking for in a potential borrower. Your credit rating is the most important factor in this regard. The lender also calculates your net income and the current debt burden after which he arrives at the conclusion whether it is feasible for you to service the debt with ease. The local laws of the area in which you are settled, are also taken into account.

The rule regarding credit rating is simple in case of real estate or any other financing: the higher your rating, the more chance of you getting a financing from lenders. Your rating reflects you ability to service the debt as well as your level of integrity.

In case of commercial real estate financing, you need to convince the lenders that what you are offering them is a good secure deal. The financier will need to know that you business will generate enough cash flow to pay for monthly rentals. The plan must state clearly how much profit you are going to make and will it be enough to cover the costs and pay the monthly rentals. All the expense must be taken into account before arriving at the profit figure.

The three rules regarding real estate are very simple: location, location and location. The actual placement of the property is a deciding factor which determines whether you get a loan or get rejected. If you are applying for financing of a deserted piece of real estate, you are in for trouble.

One of the main purposes of the lender is to cover his risk from every possible aspect. Naturally he will be looking at different scenarios in which you might default. Consequently, he will lose his money as well. In order to minimize his risk he will take into consideration the current market trends. If the future of your proposed business is doubtful, you might not get loan.

Choose your loan officer very carefully since he is the person who can make your application go smoothly or cause u headaches. If an acquaintance knows and has worked with a loan officer in the past, ask for an introduction.

The loan officer asks some weird questions that might not seem connected to the real estate financing application, but rest assured. The lender needs to be satisfied about every aspect of your financial standing before he approves your financing facility.

Some of the typical questions asked by lenders are as follows. It will be very be very useful if you are already prepared for them before applying for real estate financing:

  1. The amount of income currently being generated by the property. The lender will need to see the income statements
  2. The lender will ask for an appraisal of the property by an approved appraiser
  3. The lender will definitely want to know how you plan to use the property. If you want to make amendments in the property, you should tell them now.

You must keep in mind that the lender is exploring every possible situation that might lead to your default in the future. Whether you need financing for your home or office, the real estate investing project must be undertaken with careful planning and necessary homework.