Ask The Right Questions By Dan Harkey

The questions presented here are a solid foundation for your loan assessment process. They are designed to gather critical information about the loan request and the borrower's circumstances.

·????? ?????Loan amount, for what term?

·????? ?????First or second lien?

·?? ???????property type: single-family, owner- or non-owner-occupied, commercial, apartments, industrial, occupancy, or other.

·?? ???????The loan purpose is of utmost importance, mainly if the loan request is for a single-family owner-occupied property. Understanding the use of loan proceeds, whether primarily for business purposes (51% or more of the loan proceeds) or for consumer purposes, is a critical factor in determining the viability of the loan.

·????? ?????Where is the property located?

·????? ?????Property value.? How did the borrowers determine the

value??? A borrower’s estimate of value is often incorrect or intentionally exaggerated.

·????? ?????Cash out requested?

·????? ?????Current total liens.

·?? ???????Are the liens current?? If not, how much is the arrearage and the reason? It's essential to get the complete story in writing. All the necessary information will make you feel secure and confident in your decision-making. Completeness may make or break your transaction. Some reasons may be rational, while others are just an attempt to conceal.

·?? ????????Loan-to-value:? LTV ratio total loans divided by appraised property value (APV)

·????? ?????Description of collateral property.

·????? ?????Property address

·????? The borrower's exit strategy is crucial. What are their plans to repay this loan? This question emphasizes the borrower's responsibility and accountability in the loan process.

·?? ???????Rental income stream? What gross rents, vacancies, and expenses are required to determine net operating income, often called NOI? The NOI calculation excludes debt service. Will the NOI cover the loan payments and property expenses?

·????? ?????Most recent payment statement(s)-please obtain.

·????? ?????When was the property purchased, and for how much?

·?? ???????Have they made any significant improvements or upgrades? Please provide a list of upgrades and costs.

·?? ???????Pictures of the outside and inside: In most cases, pictures are found online, with Zillow, Redfin, Realtor.com, and Trulia. Photos of the inside and outside are necessary if the property has undergone significant upgrades that enhance its value.

·?? ??????Is the property owner/borrower a private individual(s) or an entity? If an entity, what is the purpose of the enterprise? Bottom of Form

·?? ??????If the property is newly or partially reconstructed, inside and out pictures are necessary, as well as a list of improvements, costs, and what improvements remain to be completed.

·?? ?????Any exceptional circumstances?? Weaknesses in the transaction include a history of late payments, significant arrearages in payments, accrued unpaid property taxes, outstanding judgments and liens, state and federal taxes due,? probate sales, bad credit, open bankruptcy, pending divorce proceedings, tax liens or judgments, the property has a recorded notice of substandard condition, red tagged for code violations, successor trustee acting on behalf of a family trust, multiple borrowers, multiple cross-collateralized properties, etc.

·?? ?????Forward the prospective borrower a loan application and authorization to obtain credit. Request the most recent property loan payment statement and at least three months of bank statements. Use a commercial loan application rather than a 1003 residential form when possible.

·????? Ask for a handwritten purpose of the loan letter. This letter should clearly state the borrower's reasons for seeking the loan, which can provide valuable insights into their financial situation and intentions.

·?? ?????Does the borrower have an online presence? If they are a company, they may have a website. If they are individuals, they may have a presence on LinkedIn. This information will help you feel informed and thorough. Does the borrower have a promotional summary about themselves? Add these items to the executive summary sent to the lender. Positive promotional material will add credibility to the prospective borrower.

Thank you

Dan Harkey

Educator and Private Money Finance Consultant

949 533 8315 [email protected],

Visit www.danharkey.com

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