Crafting the ideal loan package and what it can do for a broker’s business

In the real estate investment industry, a broker that constructs successful loan packages and facilitates confidence to both their investor client and the lender is regarded as a top-tier industry professional, and one that will always have clients looking to work with them.

A learned skill, crafting the ideal loan package to ensure smooth submissions and enhance the likelihood of a loan closing is a benchmark every working broker should strive for. This opens so many doors for a broker as they can not only become a proven partner with a lender, but also a trusted advisor with investor clients. Word of mouth referrals and positive reviews will be easy to come by for a broker that can repeat this skill.

Whether it’s a specific borrower profile, documentation organization, or property cash flow metrics, there are safeguards a broker can put in place to ensure they are always starting in a position of strength when taking on a deal submission.

Client credentials

One of the most important features of every successful loan is a qualified borrower. A broker has the ability to vet a variety of different lenders and understand their qualifying guidelines. From there, it’s about parsing through which clients meet the lending guidelines for each different lender. Sending over a qualified lead is an important first step for brokers to ensure a positive interaction with the lender and get a gauge on preliminary pricing. If a broker is consistently sending unqualified borrowers that result in a quick no, it can have a negative impact on future submissions.

A broker can also vet the investor clients they work with. Setting minimum standards from a FICO score standpoint can prevent frustrated clients from piling up. In the event a borrower doesn’t meet that threshold, offer them reputable credit repair services or systems so a client can improve their borrowing power and come back with deals in the near future.

It takes a committed broker to stick to this strategy, but when all parties go into the deal with strong credentials, everything just goes that much more smoothly. Brokers can help their clients get a solid loan more easily and earn repeat business while strengthening their partnership with a lender in the industry.

Documentation diligence

Another calling card of an ideal loan package is all the necessary documentation being submitted in a timely manner.

This aspect not getting the attention it deserves can add days or weeks to a loan closing timeline and brokers want to avoid this at all costs. Documentation is another area where a broker can set expectations ahead of time with their clients to determine their level of commitment.

When working with lenders, always be sure to get their documentation requirements on record and be aware of what the expected submission dates for those are. In addition, preemptively requesting documents from a client with their initial submission can save so much time for all parties involved.

While it may be viewed as more work for the client up front, once the broker has the necessary documentation, they can start their search for the best deal possible with much more certainty and confidence.

For an investor client, it can come down to a matter of days when deciding whether they want to work with a broker again. A broker needs to understand this and with the upfront documentation as a part of the process, they can get a head start on some of the more time consuming processing tasks.

Property parameters

Another addition to an ideal loan package is the presented property for the loan in question. Brokers can work their way through the industry to find the right investor leads that find the right properties which the broker can then bring the right lender.

It’s this repeatable pattern that allows the broker to close loans efficiently. Learning from clients as well as industry resources and experiences, a broker can quickly hone in on what makes a deal appealing to a lender and then relay that information into their vetting process and be a little bit more selective with the investors and properties they work with on a regular basis.

Metrics such as return on investment (ROI) percentage or debt service coverage ratio (DSCR) are two straightforward ways a broker can forecast whether a given property will perform for life of the loan. Investors on a fix and flip project should be looking for a return in mid-20s to low-30s range to feel confident enough to proceed. If a broker notices that a deal doesn’t start in that neighborhood, they should stay away and advise the client to do so as well. The same tactic can be applied to long-term rentals. A DSCR north of 1.0 is the only starting point a broker should consider. A positive cash flowing property puts the investor in the best position to succeed from day one.

While closing loans and earning business is important for brokers, so is associating themselves with successful, high-performing loans. If clients start to have underperforming loans more often than not, a broker’s client base can start to slip away due to a portfolio on the decline and the inability to create stability or longevity in the industry.

Broker business benefits

When these components come together to create the ideal file, the floodgates open for a broker. Positioning themselves as the perfect middle ground while always keeping the investor and lender in mind when working a deal is how brokers last.

The industry becomes much easier to navigate when a broker is doing so with a clear plan in place. Getting to the point in their career where crafting the ideal loan package is the only option seems like it would take too much time for a broker, but the benefits that come as a result of that initial leg work are worth it.

Repeat business due to efficient closings, referrals to other investor clients because of a repeatable process and clear expectations, and lender benefits and customer service due to a high loan closing rate are distinct advantages to achieving success in this industry and are all well within reach when a broker decides to take on this new way of doing business.

Reach out to clients and lending partners today and start laying the framework for what that ideal loan package looks like and how to put it together on a consistent basis with industry partners.

This article was provided by RCN Capital