What usually causes an investor loan to fall apart after the quote is accepted?

Question

I’m curious what other investors and lenders have seen here.

Once an investor accepts a quote, what is usually the biggest issue that causes the loan to get delayed, restructured, or fall apart?

Is it typically:

• The appraisal or ARV coming in low
• Title issues
• Borrower credit or background
• Not enough liquidity
• An incomplete scope of work
• Entity documents
• The deal no longer working after all costs are included
• Something else

From the lending side, I’ve noticed that a deal can look strong based on the initial numbers, but the details around experience, rehab scope, exit strategy, and documentation can change the structure quickly.

For those who have financed flips, rentals, or ground-up projects, what issue caught you off guard the most?

Chris Seveney · Answer

Every loan is different. We have seen loans get rejected for pretty much every reason that you've noted. Lately, we've seen a significant amount due to the investor being delinquent on another loan elsewhere in the portfolio. The other is the appraisal coming in much lower than they thought.

Andrew Postell · Answer

@Raymond Duplessis Lenders provide a "prequalification" letter or maybe a "proof of funds" letter. I guess they could provide just a "quote" but that is NOT good enough to execute on a transaction. The prequalification/proof of funds letters, those are for the seller. So, that the seller can see that the buyer is qualified. I mean, it's always good practice that the investor/buyer have it too. That way, they know what their payments, rates, closing costs are on the potential transaction. So, if someone doesn't have enough liquidity - they won't get "prequalified". If their credit isn't good enough to execute - they won't get "prequalified". Do NOT make a decision on just a "quote". Work with partners that have been vetted. Make sure they are giving you a comprehensive plan in your prequalification.

Hope that makes sense.

Mike Grudzien · Answer

All the above.

Stacy Raskin · Answer

I see deals fall apart the most when there's not enough communication up front and questions asked between the mortgage professional and the client or prospective client. Different loan programs have different guidelines and knowing what the investor is looking to do and the history of the property and the borrower is key.

Credit score, desired LTV, what type of property, are there any missed mortgage payments, how long has the borrower had the property if a refinance or if a purchase is the down payment there and where is the property located are some important questions to answer up front to find out what the possible options are for the investor/borrower. Also, the documents you mention such as LLC documents have to be up to date and accurate and it is a risk that the appraisal could come in lower than expected. Most problems down the line can be avoided by clear and accurate communication up front between the investor/borrower and the mortgage professional.

What usually causes an investor loan to fall apart after the quote is accepted?

What usually causes an investor loan to fall apart after the quote is accepted?

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