How to build a relationship with a lender?

Question

When researching real estate financing and how to get your first property, I have always heard that it is a good idea to build a relationship with the lender before getting financing from them. However, what specifically can I do to build a relationship with a lender? I plan on investing a lot in the Orlando area, and I have heard that it can be a little easier to work with a smaller local bank, so I was considering opening a checking account. Is this enough, or is there more I can/should be doing?

Drew Sygit · Answer

@Joshua Parker this really only makes sense with small local banks and credit unions.

Most larger lenders really won't let you speak with anyone that has any say in the approval process:(

Corby Goade · Answer

Just like you'd build a relationship with anyone. Make appointments with loan reps at some of the local banks and ask them a million questions about the products they offer and what matches the strategy that you are going for.

When you find a bank and a rep that are a good match, ask them if you can buy them lunch and talk more about how you can work together.

If you are doing a decent amount of business, you may get some flexibility on pricing, terms and products, but the relationship is more about them being readily available to push your stuff through faster and with less red tape when they see that you can perform and you don't make their lives miserable.

James Wise · Answer

You can open an account sure, but that's not gonna get you a loan you wouldn't be able to qualify for if you didn't already have an account with them. Honestly most banks like that just make everyone who applies for a loan open up a checking account with them as something they have to do to get approved for the loan anyway so it doesn't really matter.

Crystal Stroessner · Answer

I am a Lender. I lend both in the Commercial space (directly) and broker for Residential. A good lender will be your best trusted advisor and bring the Value of "reppresentation". They can ask the difficul questions. Many Investors shop for Capital on every deal, however there is nothing better than having a trusted Lender/Broker to work with. Lenders know the right questions to ask for the the deal to close ( only suprises, and daisy chains kill deals FME). Often Investors tell me the terms they want, and ask if my Capital can meet those terms before they will proceed with the conversation, when actually what we should try to understand is: "can the Investor and the deal qualify for those Terms?. Lenders will lend if you can qualify. Qualifying for a loan is a combination of Net worth, experience, skin in the game, and the asset. It's worth taking the time to understand how you need to present as an Investor to secure a loan. Securing a good Lender/Broker relationship is key to successfull REI's

Alecia Loveless · Answer

@Joshua Parker I work with a fairly small regional bank, maybe 25 branch locations.

For my first few deals I went through the residential loan process with a Vice President as the principal loan officer but she had an assistant that was primarily my point of contact and as far as I could see handled 95% of the process. I knew of the Vice President through some Chamber  of Commerce functions and local happenings but I’m not sure if she knew my name.

I have since started doing commercial loans with the same bank on properties of 5+ units. My point of contact is now a different Vice President and I’ve had to pivot slightly in my game plan as he is much more laid back and I have found it essential for me to stay in contact with him during the loan process to make sure the transaction keeps moving along at the pace I need it to.

Now that I’m a commercial client the second vice president often comes out to the lobby to chat about the business and properties when I’m in the bank doing business. I also now receive a Christmas present each year from him and just received a card for my birthday.

As the others have said it’s important to cultivate these relationships once you start to build them. Be sure to pay your mortgages on time as well as any other bills that may get reported to the lender such as taxes if they’re not escrowed and the water and sewer bills.

Kerry Noble Jr · Answer

yeap thats 1 of the easiest ways, opening up a checking account. Every bank that offered me a credit card, i eventually opened up a checking account and savings account. or vice versa.

Stacy Raskin · Answer

Finding the lender that has the right loan programs is important. Local banks and credit unions often have favorable terms for owner occupy conventional loans. They generally don't have as good of programs for rental property loans. For these types of loans, it can be helpful to work with a broker that has spent the time and energy to find out about loan programs that will actually fund. These loans are not regulated the way conventional loans are so important to work with someone with a good reputation so you don't have the terms or funding change last minute.

DSCR loans can be helpful as they can help investors scale whether their first or their fifteenth property. These loans are based on established guidelines that are based on credit score and down payment among guidelines.

DSCR loans won't use your income to underwrite the loan.

DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth. Here's a bit more in detail about how rates are calculated for DSCR loans:1. Credit score- the higher the best. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.

2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs. I've included an example below to help illustrate this.So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.See example below:DSCR < 1Principal + Interest = $1,700Taxes = $350, Insurance = $100, Association Dues = $50Total PITIA = $2200Rent = $2000DSCR = Rent/PITIA = 2000/2200 = 0.91Since the DSCR is 0.91, we know the expenses are greater than the income of the property.DSCR >1Principal + Interest = $1,500Taxes = $250, Insurance = $100, Association Dues = $25Total PITIA = $1875 Rent = $2300DSCR = Rent/PITIA = 2300/1875 = 1.23

If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.

DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.

Happy to connect to discuss further.

Jose Rodriguez · Answer

Go online search your location for fix/flip or dscr loan..the lenders that come up... Call them all and see which one you like best...

Connor Hibbs · Answer

Hi @Joshua Parker,

It's hard to build a relationship until you've actually worked with them. I'd recommend reaching out to several lenders in the area to learn a bit more about their programs, process, and see how the rep themselves operates.

You won't be able to learn everything immediately, but making notes of things you have problems in, or answers to some questions you have can go a long way towards building the relationship. The more you can show your lender that you are willing to learn and work with them, the more that they will be willing to fight on your behalf in less clean-cut scenarios. As you continue working with them it will get easier and easier.

Drago Stanimirovic · Answer

Great question, Joshua.

Opening a checking account is a good start, but think of building a lender relationship like dating: show up, be consistent, and bring something to the table. Meet in person, share your investment plan, ask questions, and keep them in the loop as you analyze deals. Show them you're serious, not just shopping rates.

In short: don’t just be a file, be a face.

How to build a relationship with a lender?

Most Popular Reply