“How long does it take?”
This is a question that is asked on every loan request. Whether or not borrowers need to close quickly, they always want to know when they can expect to close their loan. We’re going to answer this today as well as provide you with some simple tips to move the process along faster.
As you might assume, working with a bank or other so called “A” paper lenders, the process to get to closing can be completed. Underwriting can take 30 days or longer and all facets of the transaction are closely examined. Borrower’s credit, income, global cash flow and character are all important components banks consider before underwriting the property itself. Many times, there’s a loan officer, underwriter and eventually a credit committee involved before you can be assured that your loan is approved. This process can take 15-45 days before even third party reports such as appraisals and environmental studies are ordered. When going the traditional bank route, you can expect to close your loan in 60 days. Every lender is different of course, but 60 days is about the industry standard. One word of caution: If your local banker or loan broker promises your bank loan will close quickly, ignore it. They might not be intentionally lying to you but their idea of “quickly” is likely to be much different than yours.
Because of the uncertainty and long underwriting processes of banks, private lenders and other non-bank lenders have flooded the market place. They fill the gap when it comes to speed and can provide you with a loan approval much quicker. Private lenders generally don’t have the same underwriting requirements of a bank. We’re looking for cash flow, equity and a stable credit history. These things are somewhat of a sliding scale however. For example, if a borrower has poor credit but great equity, we’re likely to look past the credit issues and approve the loan. There’s a trade off to this of course, our rates are higher. Competition in the marketplace has certainly narrowed the gap between what a bank can offer and what private lenders are now offering however. To compete with banks, some private lenders are offering 30 year fixed terms which is unheard of from a traditional bank.
When using a private lender, you can expect a conditional loan approval within 48 hours. Once accepted, it’s typical for a lender to start ordering title and appraisals almost immediately. If everything goes smoothly, all of your required documentation should be in well before the appraisal gets back.
So when can you close a loan with a private lender? You should at the closing table in 14-28 days. Naturally there are things outside of a lenders control but your private lender should be ready to fund in that time frame.
Many private lenders are accustomed to getting bank turn down deals. Sometimes the borrower approaches a lender after his bank declined his loan just days before closing. In these cases, lenders will often use the appraisal and title work in lieu of ordering new reports. This certainly saves time and money.
Another word of caution: You might see the guys advertising 5 days closings, don’t fall for it. We have closed loans in 5 days but that’s the exception not the rule.
What you can do to make things go as fast as possible? There are certainly a few things that you can do before and during the process to make closing happen faster:
1. Be Prepared. Sounds simple but many borrowers are not prepared to begin the process. First, gather a few important documents. If you have an investment property, put together a year-to-date P&L or at the very least keep an accurate rent roll. If your business occupies the property, gather the last couple of years’ tax returns and your current P&L statement. Know what your insurance premiums and real estate taxes are. You should have a general idea of what your credit score is. To keep inquiries from impacting your credit, check with your credit card company to see if they provide any credit report with scores. Your private lender will likely require an application. If you’ve completed an application with another lender, ask if you can use this instead of completing a new one. We’ll always accept another lender’s application provided its legible and not terribly outdated.
2. Be Ready to Roll: Once you received your approval, review it carefully and ask your lender any questions you might have. Don’t assume something if you’re not clear on a term or requirement of your approval. If you’ve decided to go with a different lender or aren’t going to move forward, let your lender know. Any response is better than no response. You might needs this lender again in the future so keep a good rapport with them. After you’ve agreed to terms, there are a few items that every lender needs from you. 1) Entity Docs. You’ll need your operating agreement if closing in an LLC, articles of organization that you filed with the state when you first started the organization and a recent certificate of good standing. These items can likely be found on your state’s Secretary of State website. You’ll also need your IRS EIN letter as well. If you can’t find it, give us a call and we’ll tell you how to get one quickly. 2) Insurance Information. Locate your property insurance policy and agent contact and provide that information to the lender. 3) Title information. If you’re using a local or trusted title company, get their contact information and provide it to the lender. The closer handling your loan will coordinate title on your behalf. Your lender will likely require additional items to close but these are some quick items that everyone will ask for and should be at your fingertips.
3. Be Accessible: Sometimes during a transaction questions arise. Your title work might show an open tax lien or your appraiser might need the leases to the property. Tackling these items as quickly as possible really makes the loan process happen faster. I’m going to be a little blunt here but make this loan a priority. Sometimes this means closing the office door or putting inventory off for a couple of hours so you can respond to a lender’s questions. This is only a temporary moment in your business life so give it the time it deserves and then move on. Borrowers who are tough to reach or don’t respond in a timely fashion can expect their loan to drag. That isn’t fun for anyone.
If you have questions about the loan process give us a call at the number at the top and hit option 1 for New Loan Requests. Something to keep in mind about us, we are both a private lender and we keep an active commercial mortgage brokerage. You’ll get the best of both worlds when working with us not to mention over 20 years of experience.