Do Not Treat Loan Approvals As Profitable Investment Opportunities

[Stuart Udis]

Real estate investors should not treat loan approval as proof that a deal is profitable. Lenders are trained to underwrite loans to protect their capital—not to validate an investor's returns. Some lenders focus on closing transactions and will find ways to qualify transactions regardless of the investment's strength. While many reputable lenders do consider borrower success, not all do. Securing the 90% LTV loan construction loan should not be interpreted as deal strength. The lenders offer the loan terms because their underwriting suggests the max loan can be recovered in the event of a default. With most 90% LTV loans, there are significant cash outlays that are the borrower's responsibility outside of the funded loan amount including closing costs, carrying costs, contingencies that arise and of course costs associated with selling the real estate. Investors must be cautious and avoid using loan approval as confirmation to proceed with investment real estate purchases.