Before we get started, I want to ask you a question. Who loans money? The Federal Reserve, commercial banks, insurance companies, mortgage backed securities, lenders such as Fannie May, Freddie Mac/HUD, local savings and loans, credit unions, mortgage brokers, wealthy private individuals, the sellers themselves, and credit agencies of various organized structures including credit card products.
How about a wealthy family member, partner, or friend? Equity lines or yourself in the form of personal savings, or by using brainpower to creatively structure deals using no money at all?
If you’re counting on me to tell you one surefire, easy method, then keep reading. The only way I can do that is to bombard you with ideas and let you come to your own Magic Bullet solution. We all have a very different situation and as a result, your alternatives will be different than mine.
Here’s your first bullet. Institutions don’t lend money, people do! A building can’t approve or disapprove anything so you’re going to have to understand people and how they think in order to persuade them into seeing how you can help them by getting the loan. You fill their quotas.
The people who decide whether or not you’re getting financing have to know in their own mind that you’re not going to jeopardize their own financial security. They don’t want to be fired or go broke or have to fight you in court, or anything else that requires time, effort, and money just to break even. These people want a benefit not a headache.
The first thing you can do to build trust in the mind of your benefactor, or lender, is to show this person you have done your homework. This means you must have as many of the details as you can gather concerning why you need the money. People are reasoning creatures. If you don’t make sense, then your odds at success are marginal at best. So the number one way to get money is to create trust in the minds of those who control the purse strings.
You create trust through credit scores, tax returns, work history, and net worth assets and liabilities worksheets—i.e., loan applications. Every intelligent lender wants those things up front so gather them together and have copies ready for your first meeting. This is called preparation and due diligence.
The time to ask for a loan is when you don’t need it. Now does that make sense? Yes, it does! Here’s why: You need to build trust and you should take a little time beforehand to do that. Think about whom you personally could use to get a loan and then provide them with copies of your aforementioned self-worth documents.
Let them research your documentation and then you will be entitled to their time in further discussing your wants, needs and desires. Once you build relationships, a phone call is all it takes to get whatever you want if it coincides or makes sense with what you have already discussed and planned for.
I started out by getting small loans of $60,000 to $70,000, and those were the hardest to get because the lenders had to verify and trust what I said, backed by my history, which was represented by pieces of paper. If you want to accelerate the trust-building phase of your financial relationship, provide collateral and high level references. That way you have something to lose and your high level references give you their permission to use their reputations and good name to validate you. Get a co-signer if you can!
So get the following things together: W-2s, tax returns for the previous two years, a credit report, a filled-out loan application, three months of bank statements, copies of titles to good collateral (if any), three references, and a person willing to co-sign if possible. Make copies and start shopping for loan providers.
Organization and planning will help you prepare for your loan. I also have encouraged you to attend a homebuyer’s education class. These are held free in your community and will give you a basic introduction to real estate finance at no charge. I go all the time to refresh my memory. Plus, I am informed of current loan products, rates, and programs that can be used to my advantage.
What types of loan products are available? We have veteran’s loan (VA) guarantees, first-time buyer loans, HUD 203 rehabilitation loans, FHA, conventional bank loans, fixed rate loans, variable rates, graduated payment loans, low income loans, personal loans, and hundreds more.
What category do you fit into? That’s for you to figure out—with some free help. Go to the homebuyer class and talk to some lenders. Don’t forget mortgage brokers. Mortgage brokers are a special type of animal. These wily beasts more often than not have more access to money than almost anyone you will meet. This is because they are brokers, in essence, middlemen. They find lenders and borrowers and create a marriage. They often know of many routes to take to obtain financing for your situation. They deal with banks, money markets, insurance companies, wealthy people, and private investors. Sometimes they themselves have money to lend. They can often get you a loan that the people they represent wouldn’t give you personally.
These brokers will package a bunch of loans together and sell them as one large financial interest-bearing product that has been scrutinized, verified, and prepared in accordance with the preapproved buyer’s guidelines. Insurance companies, pension funds, bond funds, financial stock purchasers will invest in you through this larger secured product. Your loan has been sold at that point to someone else as a long-term investment.
To be continued…
Read preceding articles from the series: