I often get asked by clients why the need to send me so much information just to get a quote on a loan. They want to tell me what they think the property is worth and think I should then be able to give them a firm quote. They tell me other mortgage brokers do give quotes on such limited information. All I can say to that is garbage in/garbage out.
You need real information in order to get a good quote, one that can be delivered and closed without changes or re-trading. A good mortgage banker will analyze the information you provide and present it to a lender in a format that allows you to get the best loan. Without having all of the information the lending package is limited and you don’t get the best quote from a lender.
While you should be able to get a quote with just the rent roll, the last two years income and expense statements and a trailing 12 month collections list the more information you provide your mortgage banker the better the loan quote you are likely to get. The information I usually ask for is listed below.
Current rent roll – This is critical and the loan can’t be underwritten without a rent roll. Most lenders base the GPI of the property on the current rent roll. Also, it is impossible for me to determine if rents are at or under market without such a document.
List of asking rents and concessions – This is not a critical document, but it allows me to see the upside or downside in the rent roll.
Year to date income and expense statement – During the first few months of the year this is not very important, but as the it gets towards summer and later in the year this is critical. Also, if you have expensed any capital improvements such as carpeting, appliances or major rehab work you should provide an explanation of these costs so the financials can be adjusted.
Trailing 12 months income and expense statements –Trailing 12 month (T12) statements became in vogue with lenders a few years ago. At first the idea was to get the latest 12 month data and do it monthly so you could determine trends. The idea was to use the highest income to justify the largest loan. Now this info is used for the same trend analysis, but often to justify a lower than current EGI. For me the T12 is not that important, but most lenders like to see it. If you cant get a T12 then a month by month listing of collected income is necessary for the lender to do their trend analysis.
Last three full years income and expense statements – Having at least two years historical income and expense is critical, but having three years is very useful. If there is a nice trend of increasing income it is easer to convince a lender to trend rents in underwriting your loan. As with the YTD statement above, if you have expensed any capital improvements such as carpeting, appliances or major work you should provide an explanation of this so the financials can be adjusted. Without such information your statement overestimates your true operating expenses.
A description of the property – This is critical. Any description should include the number of units, their size, type of heating system, appliances, in unit amenities and property-based amenities. This should also include a description of any recent or planned capital improvements with estimated costs, if possible. The lender will eventually find out the true condition of your property and if the property is worse than initially indicated they will probably change their quote prior to commitment.
Photos of the property (interior and exterior) – Lenders will usually require photos before issuing a firm quote. If I am able, I usually take these photos myself, but if a borrower sends me photo’s it makes my job easer and makes it quicker to get a quote.
Resume of the borrower and management company – This should include information on the exact legal name and type of borrowing entity as well as information on the principals of the borrowing entity. It should include how many properties you own or manage and an estimate of your net worth. If you are looking for a bank or construction loan you should also include your current financial statement. Getting this information in written form is not always necessary. This information can be gained through in a phone conversation, but it is easer and quicker if it comes in written form.
A brief description of the location/neighborhood. – This is not critical information, but it is certainly helpful. As an owner you probably know the best points about the properties location and unless you share that information the lender may not find out how great a location you have. As they say real estate is location, location, location so giving a good description of the location can help you get a better loan.
A request for what you want – In order to get what you really want you need to ask for it. Unless you tell someone you might want a 25-year loan you will probably get a quote for a 10-year loan. If you want a certain dollar amount or maximum proceeds please let you lender know. You can ask for more than one type of quote, but unless you ask, you won’t get a quote for what you want.
Copies of existing reports – While getting copies of existing appraisals, environmental or engineering reports is not necessary, it is certainly useful. Even if these reports are old they give excellent descriptions of the property and issues that might need to be addressed on a loan.
A description of any issues you see at the property – Through the due diligence process lenders will find out everything about your loan. If issues are found out late in the process you have limited negotiation strength. If, however you bring up issues early you will be able to negotiate the solution from strength. Once you are processing a loan most lender think they have your business, but if you negotiate issues before going under application they are still trying to win your business and therefore must negotiate with you.