True story. A close friend of mine walks into a bank ( I won’t mention the name but the initials are W-e-l-l-s-F-a-r-g-o) to put an equity line of credit on one of his homes. He has an 840 credit score, no debt, owns three pieces of property that are paid for, and almost $750,000 in liquid assets.
Slam dunk huh?….
He gets rejected!!
Amazingly, I have seen many people who would have been “slam dunks” for financing in 2006 get completely shut out of the capital markets in 2010.
And it doesn’t matter whether we are talking about commercial or residential, the factors which determine who gets money from commercial banks (or any institution for that matter) is pretty consistent for all property types. Here are some of the guidelines banks are requiring to get a home loan today:
• 720+ FICO score
• Verifiable and sustainable employment or self employment for
the last two years
• 12+ months of mortgage payments in an immediately
liquid account
• A minimum of 25% in reserves if planning on purchasing an
investment property
• 2 years experience as a landlord/property manager,
if purchasing an investment
• No late payments or foreclosures on real estate debts
These are the basic requirements needed which the lending world wants.
Obviously there is market need for reasonable financing. I had a meeting yesterday morning with a couple of business partners and we were discussing ways to bring capital to the market that didn’t require you show you could change water into wine in order to qualify.
Private investors are looking for ways to make a decent return on their investments and although the Real Estate market has been difficult for the last few years, it remains a solid option for investors to lend money if those of us of the creative mind can package deals and offer investors a good return and create a win-win situation.
I predict a trend of this nature where a good portion of the financing will come from private investors as Fannie Mae guidelines get more stringent and the commercial banks continue to be overly tight.
You will see and hear a lot of this very soon so stay tuned. What are your thoughts?
Sal Cartagine is an award winning Real Estate Broker with 23 years experience specializing in residential, relocation, rentals, investments and property management. Sal can be reached directly at (602) 818-3886
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