How to Assess Personal Financials?

8 Replies

Hi BP,

Getting more interested into REI, I would like to assess my personal financials.

On top of my head, some main factors are income, debt, FICO, and rental fees.

I feel that there is much more to consider. 

  • What information would a lender want to know?
  • Are there any blog post or documents that I can refer to?

Thanks,

William

Lenders are very interested in debt to income ratio, and like to see steady income and a good Fico score, they will sometimes look at other assets in regards to your ability to pay but generally that doesn't get you a much higher loan limit unless you are putting up the assets as collateral.

@William Lu You can just Google "Personal Financial Statement" and you should be able to find some templates.  They all pretty much have the same "input categories".  I've never really had a conventional lender ask me to provide a PFS (tons of other info, sure) but my commercial lender had me put one together along with providing pro-formas for the intended purchase and actual T12s from my property manager for currently owned real estate.  That's a little different ballgame as somethings there are net worth calculations that those smaller banks will want to take a look at.  Anyway, it can't hurt to put one together for yourself even the lenders don't end up asking for it.

DTI, liquid reserves, FICO, 2 years historical tax returns of consistent income I would say.

@William Lu Hey William, 

There is a lot that can go into this question. If your looking to flip or wholesale you can get away with having horrid financials. For wholesaling you need essentially no track record just the ability to write a contract. If your flipping you'd most likely just have to find the property and then take the back seat and let the person with the track record be the lead. This will help you build your relationship with your hard money guy and soon enough you wouldn't need the partner. This all depends on how solid you are financially, if youre solid you could find someone to lend you money no problem. For buy and holds you need to have great financials, just like @Aaron Klatt and @Christine Grimley mentioned. I know this didn't really answer your questions but I guess what I am getting at is if you don't have a solid track record with your financials, i.e. credit isn't built, no liquidity, no assets, high DTI, don't let that discourage you as there are still a lot of options available to you to in real estate. The hustle just gets a little harder. Any questions let me know.

Mainly you would need a 620 plus credit mid score, 1 mortgage with 24 monrths, 3 other trade lines with 12 mos history and showing no more than 1x30 and have a solid good deal and money to close with. The experience we can work with as long as you have the things I told you. You would have to discuss this with different lenders to know for sure. But here, those would do

@William Lu DTI, credit history, liquidity (cash, 401k, IRA), employment history (2 yrs continuous or combined), tax records (2 yrs).

Employment history can get a little tricky. For example, it’s usually ok to change jobs so long as you are moving up and not down and not changing jobs too often. The caveat to this is that you cannot switch back and forth between contract and W-2 employment as this resets the clock in the eyes of the bank each time you do.

Credit history is also a little tricky. The basics apply, pay on time and keep your LOC utilization below a certain percent; however, length of history and a few other things come into play. One thing I’ve discovered is that having a LOC, preferably fee-free, that you can keep forever is extremely beneficial to bolstering your score and credibility in the eyes of the bank once you’ve held it for several years. You can use google to help find a lot of helpful advice regarding this.

Tax records are used to make sure you aren’t wiping away all your income with qualifying deductions. Banks can, and will, deny you loans despite having high gross income amounts if your taxable income ends up being low or close to zero.

DTI is just a measurement of your capability to repay. I believe the standard for most banks right now is around 43-45% of gross income but lower line item limits may apply. The only things that are looked at here are active debts that show up on your credit history.

NOTE: This is not, nor is it intended to be, financial advice. Make sure you consult with a local qualified professional.

Mainly you would need a 620 plus credit mid score, 1 mortgage with 24 monrths, 3 other trade lines with 12 mos history and showing no more than 1x30 and have a solid good deal and money to close with. The experience we can work with as long as you have the things I told you. You would have to discuss this with different lenders to know for sure. But here, those would do. These should also work for the refinance cash too since that lender is getting a pretty solid deal that is freshly rehabbed and leased, which has taken away a lot of the risk so that lender likes the deal. That's the purpose of the hard money lender. To set you up for a low risk, good interest rate, long=term loan that will pay the mortgage as well as net you a little over that every month, plus give you most of your money back to refinance your next deal!

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