QUOTE (RedlineBrett @ Sep 26 2008, 09:29 AM) I have had a number of REIN clients be adamant about a 10 business day financing condition removal period.
Pushing for this has made it difficult for me to negotiate other terms as most residential buyers only need five days max if they are pre-approved. It puts off a bad vibe to the sellers as it gives off the impression my guys can`t easily afford the property.
As a listing agent I have had financing clauses removed in *one or two* business days. I have made offers for REIN members for ten days and have been lucky to get seven in most instances.
I know that investment property purchases are more complex but why can`t most of the portfolio analysis be done prior to actually having a property selected?
What are the banks/mortgage brokerages doing with all this time? Ten business days is a LONG time for anything!
What can REIN members do in advance to be more competitive with their financing clauses?
Thanks!
Financing on rental properties is always tougher than on owner occupied homes as there are alot more variables. Your typical client searching for a residence goes out and gets preapproved. He knows how much he is putting down, the type of mortgage he`ll likely choose, what his payments will be, and the amount that he is prequalified for based on his income/downpayment. The only real variable is the property itself which in most cases, is in very good condition. With most lenders, on owner occupied properties an appraisal is not even required as lenders can either insure or use a property assessment tool to confirm the value. For most strong residential purchasers subjects can be removed in as little as a few days.
The typical purchaser of a rental property is working with far more variables- many of which can`t be factored in until the property is actually purchased. The appraisal is key to the both the banks decision and the clients.
All rentals require appraisals (unless of course they are insured) so the subject removal period has to allow enough time for the insurer to go in, compile their report and send it to the bank. This all depends on the appraiser and the owner of the property. If the appraiser is very busy, it can take much longer and if the owner/tenant in the property is uncooperative, it can also delay things.
It is not until the appraiser has completed their report that the broker/banker and fully qualify the file. Most clients cannot afford to carry a rental property without using rents to qualify - only the appraiser can confirm the rents for the bank and often those amounts are signifigantly less than based on the clients estimate - and the figure used to prequalify. If they purchase a home with an illegal suite, in most cases those rents cannot be used - again something we often don`t know until the appraiser goes out. If the rent figure offered by the appraiser is not what was used to qualify, the file has to be underwritten again, requalified and in some cases, sent to a different lender and the file started over again.
For clients with a porfolio, the lease agreements/mortgage statements of thier other properties need to be provided. While the broker already has, and has usually reviewed these items as part of the prequalification process, the bank needs to review them as well once the offer is accepted. If its a large portfolio, its big task for the lender and takes some time. Upon review they may request additional documents to be provided which would also need to be reviewed.
Many REIN members also use more creative financing structures which are part of the offer, and such cannot be reviewed until the offer is accepted. If there is a VTB or cashback, the bank needs to review the details and if the combined LTV is greater than 80%, it usually needs to go to a head office for exception review. If the client wishes to do a purchase plus improvments, it will be property specific and the majority of the doc collection cannot commence until the offer is accepted.
Often, due the variables, the final financing committment is not what the client/broker had originally intended. The type/age of property may cause the LTV to be reduced, the amoritization to be reduced, or the rate amended. Once a firm committment is obtained based on appraisers rents, the cleint and broker need to decide if the financing arrangement works with thier portfolio and long term plan.
Hope that helps,
