When preparing a loan request package for presentation to the lender, the real estate borrower must be as complete as possible the first time. Insufficient, imprecise, or incorrect data in a loan request package can mean a rejection for an otherwise attractive real estate loan.
Following are suggestions on things to include with the loan request package:
The Loan Request
There should be a detailed statement of the purpose of loan and the sources and uses of funds for the project. The property should be described in detail (whether it is a proposed development or an existing building), with a map showing the site and its relation to major roads, shopping access, recreation and other advantages.
Cash Flow Statement
The first thing the lender will think of is the cash flow on the property. Lenders have to be assured that the borrower will have sufficient cash flow (from the property or otherwise) to service the loan. The loan package should include a detailed cash flow statement covering the subject property and any others owned by the borrower. For each, the loan application should show percentage of ownership, date of purchase, original cost, present market value, present mortgage balance, and net (equity) value. It should also show the net cash flow before and after the debt service. Should any property show an unusually large difference between gross and net income, make sure there is a complete explanation.
The cash flow statement is a picture of the borrower’s portfolio and ability to manage property and money. The borrower should emphasize acquisition and management strategies and successes with particular properties.
Details Of Expenses
When preparing expense analyses, the most complete information will avoid the need for the lender to come back with more requests for information, and delaying the loan approval process. Expenses for the property on which financing is sought should be broken down to show taxes, insurance costs, utilities and services, management fees, property security expenses, and general and administrative expenses. Provision should be made for structural reserves for such items as roofs and parking lots.
Also included with the expense analyses should be an expense reimbursement schedule, showing expenses that can be passed through to tenants on a prorated basis. These might include utilities, taxes, insurance and others.
Financial Statements
When the borrower is an individual or a partnership, the lender will usually want personal financial statements. These should be current and less than 90 days old for the borrower and any guarantor and be accompanied by bank and credit references.
The corporate borrower will need to provide legal details about its organization, names and addresses of its officers, and a certificate of good standing showing that it has paid all taxes in its state of incorporation.
The Appraisal
Usually the lender will want an appraisal made within one year by a qualified appraisal firm (one accredited by the American Institute of Real Estate Appraisers). The appraisal should be detailed, with notes and comments, comparable sales facts and figures, and assessed valuations.
The appraisal should be accompanied with photographs showing the property from its most attractive and impressive angles. Each photo should identify the view and the particular features shown.
Positive Features Of The Property
There should be a summary portion of the loan package that highlights the condition of the property and the reasons why it should be profitable in the future. Current vacancy rates, list of major tenants, traffic counts, availability of public transport, amenities and any other positive features should be included.
Any information about prospective improvements in the area, whether public or private, that will enhance the property’s value should be included.