Article:
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? Could you get the complete story in writing? 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
What are the borrower's plans to repay this loan? This is a crucial aspect that should not be overlooked. Understanding the borrower's strategy for repayment is a key part of the assessment process and should be given due consideration.
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?
I've included the most recent payment statement(s).
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, on Zillow, Redfin, Realtor.com, and Trulia. However, if the property has undergone significant upgrades that enhance its value, I need photos of the inside and outside.
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.
Are there 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. Thorough documentation is key to a successful loan assessment. Use a commercial loan application rather than a 1003 residential form when possible.
Could you ask for a handwritten purpose of the loan letter?
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. The borrower's online presence can provide valuable insights. Could you add these items to the executive summary sent to the lender? Positive promotional material will add credibility to the prospective borrower.