The Mortgage Application and Approval Process. What are the steps?
You have identified a financial need, and require financing. You will be pledging your commercial real estate asset to secure repayment of your loan. So now what? The process of completing a lender’s loan application form is both the initiation and formalization of your financing request. What are the steps? Let’s take a closer look at the process:
The basis upon which a lender will provide your property financing, is a two-fold determination:
i) you’ve got the financial strength, capacity and expertise to effectively own and manage the property, and
ii) the property generates sufficient cash flow, which repays the debt.
The lender’s primary responsibility therefore is to substantiate that the borrower, and the property offered as security, taken together, meet the lender’s guidelines. This lender review is called, respectively, property underwriting and borrower underwriting, which together represents the loan underwriting. This loan underwriting is the activity that takes place after receipt of your loan application and supporting information, and which will yield a decision on the part of the lender.
Consider a loan presentation package.
The purpose of highlighting what a lender is typically focused on in their review is to underscore that preparing a proper and persuasive loan presentation package is of considerable value in assisting a lender to reach a favorable decision on your loan request.
A loan request supported by an application form alone is insufficient and incomplete. Lenders do not have one long form for completion that captures all of the information they require. Why? Because each property and each lending opportunity is different. No one generic form can adequately capture all of the information required for lender review. The standard application forms required by most institutional lenders cannot possibly contain sufficient detail to enable a proper review and consideration of borrower’s needs. You’re providing considerable input into the loan underwriting review, and thereby positively impacting the lender’s decision. But why go through all of this work? Won’t the lender review your application anyway?
Then why sign a loan application? In most cases, this is a formality. It is for the purpose of properly dating and recording the request, ensuring that you and your lender have a mutual understanding of your needs, and for meeting regulatory requirements as relate to applicant identification, privacy of information, and disclosure. It typically provides authorization for the lender to begin their assessment, and to undertake credit reviews and other investigations they deem prudent.
The loan approval process. A series of steps.
The completion of the loan underwriting by the lender forms the basis upon which your loan approval is considered. To understand why this is so, it is useful to understand the Lender’s loan approval process, and see that it is actually a series of steps.
Subsequent to the receipt of your mortgage application form, a lender reviews data you’ve provided. Depending upon how thorough your information package is, the lender will be able to determine if the loan request meets their lending parameters. Your ability to prepare a proper and persuasive loan presentation package for your lender assists him or her to quickly reach a favorable decision on your loan request.
initial loan review
lender issues Letter of Intent
lender approval and issuance of Commitment Letter
Understanding the loan approval process, and how you can effectively secure competitive financing, is a key to your real estate investing success.