We’ve been looking at the pending sale process from due diligence to inspections to disclosures. In the final installment of this five-part series, Bob Nelson, Eugene real estate investment broker with Pacwest Real Estate Investments, and Marcia Edwards, Eugene residential broker with Windermere Real Estate, look at the financing side of getting to a successful closing.
Read or Click to Listen:
It’s best if the financing is secured or the process of seeking out the financing has started well in advance of the time you even look for property. Get pre-qualified: find out exactly what you can and cannot afford to do by the lender’s standards. Once you are pre-qualified, get pre-approved.
In the case of residential real estate, Mark Brocket at Willamette Valley Bank is an example of a great loan officer. He has the ideas and skills to tailor fit a loan for you. Once you’re in the pending sale process, matters accelerate pretty quickly. The lender will receive a copy of the commitment you’ve made and will then start asking for documentation to verify that you can pull this off as a buyer.
Pulling it off includes providing a financial statement, verification of employment, and verification of savings. These are all issues that if you don’t start the process early enough, it can drag out the closing, causing the seller to lose faith in your capacity to close.
A critical step in the process of financing is to get an appraisal. Lenders want to make sure they understand the value of the property. For instance, if you are putting 20 percent down, they want to confirm that a 20 percent equity position exists beyond what they are loaning for the property. Quite simply, they want to understand their risks, so the appraiser is working on behalf of the bank to understand the extent of your collateral.
Bob Nelson, Eugene Commercial Real Estate Investment Broker:
The collateral and the appraisal are important, but with an income property, ratios are an important part of the picture. The ratio of the net operating income relative to the amount of annual payment or annualized payment divided by 12 to get monthly payments will drive the entire ship.
There are a lot of steps to financing. With good coaching beside you and the lender in front of you, you’ll get through it. The key is to stay on top of that documentation.
The Pending to Closed Sales Successfully Series is from Bob Nelson and Marcia Edwards “Real Estate Today ” Eugene, Oregon, radio show, which airs at 5:30 daily on KPNW.