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By Laura Watson
Approval of a loan can make or break your real estate investment plans. In the past, it may have been easy to get a loan for your real estate ventures, but experts say that things have changed and getting a loan requires more effort.
Real Estate Investment Loans
Investing in real estate is a long-term commitment. Real estate investors/Property dealers are mostly eligible for this loan. It should not be entered into lightly as it requires a lot of hard work and can take years before you start seeing good returns from the investment, if at all. For those who are interested in becoming involved in real estate but do not have the necessary startup capital, it is possible to buy properties through various financing options.
Real estate investment loans are available for those who want to invest in real estate but are short of cash. Of course, there are various banks that will provide you with the loan after assessing your credit worthiness, but some require collateral against the loan amount which can be forfeited if you default on the loan payment.
In some cases, it may be necessary to use your home as collateral for a real estate investment loan. In such a case, you can either borrow against the value of your home or take out a home equity loan that can finance your real estate investments. You will have to pay back both loans with regular monthly installments.
10 Simple Steps to Real Estate Investment Loan Approval
Some people say banks are tightening up on real estate loan approvals. However, this is not true in all cases – you can still get a loan for real estate investment in 10 simple steps.
1. Determine your requirements
You must know the amount of money you want to borrow and how it will be used before trying to contact any lending institution. This means having fixed ideas about where you would like to invest, how much you can afford as a down payment and what other expenses you will have.
2. Write a letter of intent
A letter of intent is typically a one page document that sets out your intention to borrow money from a particular bank or finance institution. This may be presented as an offer to the lender saying that if funds are made available to you, you will be able to repay it on time.
3. Prepare a business plan
A detailed and complete business plan also helps the lender determine if your proposal is sound and if your investment will provide returns that are sufficient enough to service the loan. This document should include how you intend using the money, how you will generate profit, as well as any other sources of financing and repayments instalment.
4. Get your credit report
It is important to understand the status of your credit history before applying for a loan. This information will be needed as part of the application process, so you should order credit reports and go through the reports carefully, taking note of any errors that may affect your ability to get a loan from a financial institution.
5. Dispute Inaccuracies, Late Charges & Negative Information
If you notice any major inaccuracy in the report, do not hesitate to contact the credit agency and let them know. The last thing you want is a late payment or an inaccurate charge appearing on your credit report that could disqualify you from getting a loan.
6. Pay off Debt
This step is important if you have a lot of debts as lenders consider those with more debt as higher risks. In order to reduce your risk, it is best that you pay off your debts first before proceeding with the loan application. If you feel unsure about how to go about paying off credit card bills and other outstanding debt, seek help from a financial professional.
7. Choose a Lender
Lenders come in different shapes and sizes (community banks, credit unions, mortgage brokers, etc.) and choosing the right one can make your loan application more successful. Some of the most common lenders are bank, finance companies, mortgage companies and individual lenders. There is no definite rule about which one to approach for a loan, but some may offer more flexible terms and rates of interest.
8. Prepare Documentation
Your lender will want to see documentation about your income, assets and the investment you have planned. This is part of the due diligence process meant to determine if you can afford your repayments on time. In case you cannot provide all the details about your assets, you might consider getting a financial analyst or accountant to help with the documentation.
9. Provide Assets as Collateral
This can include gold and jewelry, land and property and even luxury items such as cars. If your collateral is not enough to cover the loan amount, you may need to find an alternative source of security or choose a lower loan amount. You might also consider asking your guarantors to co-sign the application with you.
10. Get Approval
If all goes well, you will have an offer letter from your lender within a few weeks after applying for your loan. Once you get that letter, you will have to complete more paperwork to get the money into your account.
These 10 simple steps will ultimately help you to be successful in your real estate investments. It can seem a little bit daunting at first but don’t let that intimidate you!
