If you really want the details, review carefully the CLOSING INSTRUCTIONS, NOTE, AND MORTGAGE downloads available under DOCUMENTS in the pull down menu.  These documents however probably have more than you need or want to know.

STREAMLINED APPROVAL: To get things moving provide us with BASIC information on the collateral property, other property owned by the borrower, and the borrower’s income and expenses, itemized by property, and all sources of income for the borrower. Based on this preliminary information we can then decide what other information is necessary to make a decision, or to refer the loan to a particular investor.

OVER HALF OF THE LOANS WE DO WILL NOT REQUIRE MUCH MORE INFORMATION.

INFORMATION ON COLLATERAL:

(1) The most important single piece of information on any piece of real estate collateral is the NET OPERATING INCOME (NOI).

NET OPERATING INCOME is derived by subtracting the collateral’s operating costs (NOT including any financing costs!!!)  from the gross income of the collateral.  Generally lenders like to see NET OPERATING INCOME in excess of 120% of the interest (and perhaps principal) cost for a proposed loan.  Lenders vary on just what accounting items should be included in NET OPERATING EXPENSES but generally particularly if a property looks like it is going to need work over the life of the loan some amount should be included for maintenance and repairs.

NET OPERATING INCOME is also critical in determining the value of a property by the capitalization approach.  An average wood frame property might have a cap rate of 8 percent. A better property with better tenants might have a cap rate of 6%.  A great property with great tenants might have a cap rate of 5% or even lower.  Roughly speaking if the cap rate is 8, multiply the annual NET OPERATING INCOME by 12 to arrive at a capitalized value. If the cap rate is 6 multiply by 16. If the ap rate is 5, multiply by 20.  (In each case multiply by the reciprocal of the cap rate).

NOTE THAT NET OPERATING INCOME CAN ONLY BE USED WHERE THERE IS ADEQUATE BUSINESS INTERRUPTION INSURANCE IN PLACE OR WHRE THE PROPERTY IS INSURED IN AMOUNT AT LEAST EQUAL TO THE GREATER OF (A) 80% OF REPLACEMENT COST AND (B) THE AMOUNT OF THE LOAN WITH “AS AGREED” OR “REPLACEMENT COST” COVERAGE.

(2) Any information of comparable properties that have recent  sold is also of value in making an initial determination of the value range of the property

(3) Also, replacement cost is an important number:  what is the building worth per square foot?? how many feet is the building?? what is the land value??  Add the total square foot value to the land value and you have replacement cost value. We will always at some point look at the collateral to estimate these numbers. Any facts useful in estimating replacement cost could also be submitted initially.

 A copy of an appraisal, even an old one, is very useful,  since it should contain a lot of relevant information.

Of course none of these facts necessarily establish a fair market value or what the property would actually sell for.  The actual value might be much higher or lower than any of these values, or any number arrived at by an appraiser.  Chances are good however that the actual value will fall somewhere between the highest and the lowest of these results.

INFORMATION ON OTHER PROPERTY OWNED:  We need essentially the same information on any and all real estate owned by a borrower or guarantor even if this property is not going to be pledged as collateral.

INFORMATION ON THE BORROWER:  Detailed explanation of all sources of income which might be used to repay the loan. Ability to repay is generally evaluated by adding the NET OPERATING INCOME of the collateral to other sources of borrower income (earnings, cash flow from other properties owned, etc.). Note that if income from a wholly owned corporation or other entity is needed to provide debt coverage that entity will have to be a co-obligor on the loan.

Remember that most lenders will run a google or other electronic search on all borrowers, and frequently tenants and others associated with the loan.  Derogatory information on any of these is apt to make a loan approval much more difficult.

FOR PURPOSES OF INITIAL APPLICATION THE ABOVE IS THE ONLY INFORMATION WE INITIALLY NEED. 

EMAIL ALL INFORMATION ONLY TO WEDGESTONELEND@YAHOO.COM BEING CERTAIN TO PUT BORROWER NAME AND PROPERTY ADDRESS IN THE SUBJECT LINE. SUPPORTING DOCUMENTS AND PICTURES ARE NOT INITIALLY NEEDED.

We then look at all easily available recent comparative sales values for similar properties in the area.  These are usually obtained from ZILLOW and similar sites.

We may call people with knowledge of real estate in the area for their opinions, and even ask them to look at the property.  This is usually fast and not very expensive.

We look at the results of Google searches for both property addresses and borrowers.

The business decision underwriting varies greatly from loan to loan, and from lender to lender,  but generally consists of verification of the ability to repay, the adequacy of the collateral and the stability of the borrower’s investments or businesses.  Copies of checking account statements, leases, maintenance schedules etc. are frequently requested. Various internet searches are made about the borrower, the borrower’s business(es), and the borrower’s investments.

A physical inspection of the collateral and any other real estate owned by the borrower is usually made by the investor or a third party retained by the investor.  The borrower may be asked to pay for this/these inspection(s). The physical inspection gives a good idea of the replacement cost per sq. foot and also shows such things as the quality of the tenant, the condition in which the building is maintained, and neighborhood influences.

While we try to avoid lenders who require a formal appraisal (slow, expensive and of very limited value) of the property, we will as a last resort refer a loan to such a lender.

IF WE OR AN INVESTOR NEED ADDITIONAL INFORMATION OR DOCUMENTATION OR IN THE WORST CASE AN APPRAISAL WE WILL LET YOU KNOW. Nothing is more important to timely completing the loan process than prompt and responsive forwarding of exactly what is from time to time requested.

We or an investor can then fairly promptly decide whether or not to make a loan. WE PRIDE OURSELVES ON MAKING A QUICK YES OR NO DECISION and trying to avoid investors who cannot.

Assuming the decision is made to extend the loan, most of our investors generally allow a borrower to select his own settlement agent provided that that settlement agent can provide an INSURED CLOSING PROTECTION LETTER and a TITLE COMMITMENT from an ALTA title insurer. These are very standard documents issued by all ALTA title companies or their agents.

If you do not have a settlement agent but need to retain one, pull down a list of our suggested settlement agents from the SUGGESTED VENDORS menu.

If we approve the settlement agent, the ALTA title company, the Insured Closing Protection Letter and the Title Commitment we will forward final Closing Instructions (a specimen copy of which is available from the DOCUMENT menu ) to the Settlement Agent, along with the loan documents (generally just the note and the mortgage specimens of which are also available on the Documents Page) and the loan proceeds.

The settlement agent will be responsible for scheduling and conducting the closing after examining title.

This closing process is now VERY standardized across the lending industry and used by virtually all lenders, although many require the use of their own attorneys.

By making a quick business decision on the borrower’s loan request however we can get money into the settlement hands as quickly as possible.

The settlement agent can generally schedule a closing fairly quickly, record the mortgage and give the borrower this money.Since the settlement agent is entirely responsible for this process, including scheduling the closing, the borrower should discuss these matters directly with the settlement agent.

For additional information see pub articles on linkedin.com/in/philip-goduti-57453a165