Selecting a lender can be a difficult process if you don’t know the right questions to ask. This article features 5 questions to ask when looking for the lender in FLORIDA who is right for you!
While the process might seem arduous, you must remember that you have the upper hand. There are a variety of lending options available, and in theory, these lenders are competing to have you as a customer.
As an investor looking for a lender, your process might be different than someone looking for a traditional mortgage of a home they plan to reside in. Here are a few great questions to help you in your search.
What are Your Terms, and Are There Additional Fees?
When considering a loan, it’s crucial to delve into the specifics beyond just the interest rate. Understanding the Loan to Value (LTV) ratio is paramount as it directly impacts the amount you can borrow relative to the appraised value of the property. A higher LTV ratio may mean higher risk for the lender, potentially resulting in a higher interest rate or additional requirements such as private mortgage insurance (PMI). It’s wise to seek clarity on this ratio upfront to gauge your financial obligations and the overall feasibility of the loan.
Equally important are the points associated with the loan. Points are upfront fees paid to the lender at closing, each typically equal to 1% of the loan amount. These can significantly affect the overall cost of borrowing and should be factored into your financial planning. Additionally, borrowers should inquire about any ancillary fees that might accrue during the loan process, such as legal fees for document preparation, underwriting fees for loan assessment, administrative fees for processing, and any other miscellaneous charges. These fees, though often overlooked, can substantially add to the overall expense of securing the loan and should be understood and negotiated where possible.
In summary, while the interest rate is a key factor in loan affordability, comprehensive inquiries into the LTV ratio, points, and additional fees are essential for making informed financial decisions. This thorough understanding not only prepares you for the immediate costs of acquiring the loan but also ensures transparency and clarity throughout the borrowing process, ultimately empowering you to manage your finances effectively and secure the best possible terms for your circumstances.
These fees can greatly impact your profits if they are not accounted for from the beginning. Make sure you are of any prepayment penalties you might be charged as well.
Do You Have Property Criteria That Must Be Met?
Geographic boundaries, as well as limitations on the type of property you are able to purchase, might be put in place by the lender. Make sure you fully understand what types of properties the lender will allow you to buy.
If you are looking for a two bedroom, fix and flip, but the lender requires 3 bedrooms and a price point of 250k+, you might be out of luck.
Do You Provide Funds For Rehab?
In many cases, a real estate investor will need to make some repairs. Will you have to pay for this out of pocket? Or will your lender provide funds for rehab and upgrades?
This is important to know when you are looking at potential properties for investment. While the ability to borrow more money to fix up the home might seem appealing, make sure the value is there as you will be paying additional interest on these funds.
Does Your Company Flip The Loans After They Are Originated?
Several companies opt to sell the loan to a third party after its origination. This implies that there’s a chance you might end up dealing with an unspecified third party. In the event of loan flipping, you may find yourself making payments and interacting with a different company once your loan has been processed.
What is Your Experience With Loans Like This?
Those familiar with your actions and recognize the favorable terms you’re securing are inclined to offer you better conditions. They perceive the loan as low risk and can assist you in optimizing your profits.
As with any decision in real estate, it important to know all of your options and shop around. Remember to ask questions about ANYTHING you are uncertain about.