There are situations where one has to be creative just to get the deal done. This series of articles on the art of creative financing will discuss different methods and techniques to get a property financed. The more methods you understand, the easier it will be for you to find solutions to a seller’s problems. As you analyze each deal, be sure to use the simplest financing technique that will get the job done.

Whether you are a brand new investor, just getting your feet wet, or a seasoned professional, one of the most important things in real estate is maximizing the return on your investments, while minimizing risk. One way to help maximize your profits is to negotiate a discounted purchase price; another way is to get the least expensive financing possible for each deal.

Whether you are dealing with banks, mortgage brokers, hard-money lenders, private lenders, or good old Uncle Charlie, a well-written, easy-to-understand loan package will help you get money faster and, quite often, cheaper.

Most often we use loan packages when we are dealing with traditional financing, like banks, credit unions, and other mortgage lenders. There are basically two different types of traditional loans - residential loans and commercial loans – each with their own qualifying criteria. Residential loans are for single-family homes and buildings with up to four units, such as duplexes, triplexes, and fourplexes. Commercial loans take over when an apartment complex has five or more units and cover most other types of real estate from office buildings to industrial complexes.

Residential loans are split into two different categories, owner occupied and non-owner occupied. Investors, for the most part, will be getting non-owner occupied loans for properties they are fixing to sell or fixing to rent. However, there are occasions when an investor will actually move into the property and live there while they are rehabbing, in which case they may qualify for an owner-occupied loan.

There are also three different types of residential mortgage loans – conventional, FHA, and VA. Briefly, VA loans help veterans get into homes for little or no down payment, and FHA loans are loans insured by the government, allowing more people to qualify to get into homes by requiring smaller down payments.

There are many different specialty loans and loan programs which will be discussed in future articles; however, they all require a loan package to be submitted in order to qualify for the loan.

Just what is a loan-request package? For the serious investor, it is more than just a loan application with a few attachments; it is a sales tool! Yes, you are trying to sell the lender on the fact that it will be in their best interest to loan you the money for your project. A well-written, easy–to-follow loan package will show the lender that you are prepared and have thought through the project.

Especially in today’s financial environment, when you apply for a mortgage loan, lenders tend to ask for enough documents to destroy a small forest. Just as you want to minimize your risk in your real estate investment, lenders want to minimize their investment risk that you will default on the loan. Thus, they require lots of documentation to verify facts about you both personally and financially, and facts about the property you will be pledging as security for the loan. Each lender will have a list of the minimum documents they require. Be sure to give them everything they ask for.

Typical List of Documents in a Loan-Request Package

1. Personal Information

• Lender application form – will include name(s) of applicant(s), current address, phone, type and amount of loan required, as well as other personal and financial data
• Driver’s license and social security card photocopies
• Divorce settlement papers, if applicable, no matter how far back in time
• If not a U.S. Citizen – permanent resident alien – copy of green card (alien registration card) or non-permanent resident alien – copy of Visa
• Your personal resume

2. Income Documentation

• W2 forms for the last two years
• Last two pay stubs, covering at least one month
• Signed tax returns for the last two years – be sure to include form 1040 (long or short form) along with all schedules
• Business tax returns for the last two years if you own 25 percent or more of a business
• Current business income statement
• If self-employed, many lenders want verification that you have been in the same line of work for at least two years
• Rental/lease income (proof required will vary by lender)
• Proof of social security income, pension, disability income, 1099 income, or any other income you want to use to qualify for the loan

3. Employment Verification

• The lender will request verification from your employer that you are indeed an employee
• The lender may also request a statement from your employer indicating that you will most likely continue to be an employee for the foreseeable future

4. Asset Information

• Bank statements for the past two months
• Last quarter investment or trust accounts (if applicable)
• Copies of stocks, bonds, or U.S. savings bonds
• Current statement for 401(k) and/or IRA accounts
• List of all real estate you currently own, including address, current value, loan balances, monthly payments, and rental income (if any)
• Value of autos, boats, and any other personal property
• Listing agreement and sales contract if you are selling your current home
• List of any life insurance cash value

5. Liability Information

• Complete list of current debts and minimum monthly payments (may be taken from credit report)
• List of any loans on which you are a cosigner
• If debts are owed to individuals, lender may require a statement from payee as to the current balance, payments, and if payments are being made on time
• If the loan requested is for a refinance, a copy of the current mortgage and payoff amount

6. Proof of Housing Payments

• Last 12 months of cancelled checks paid for rent (if applicable) or payments on a land contract
• If you rent your home and it is managed by a professional management firm, they can verify that you are current on your rent and that rent has been paid on time

7. Property Information (for investment property purchase or refinance)

• Property address, legal description, and location on map
• Purchase agreement (if applicable)
• Copy of earnest money check (if applicable)
• General description of the property with pictures of property and neighborhood
• The year the home was built
• Type of construction
• Renovation proposed (if any)
• Details of renovation plan and schedule, including the budget, the contractors to be used, and the added value to the property when the project is complete
• Copies of any appraisals available

8. Miscellaneous Information (may be required)

• Gift letter (if applicable) signed by the donor and proof of receipt and ability to gift the funds
• Landlord’s contact information (if applicable)
• Realtor’s contact information (if applicable)
• Insurance agent’s contact information
• Contact name and phone number for the lender’s appraiser to access the property
• College diploma if you graduated within the last two years
• Cosigner’s complete information (if applicable)
• All pages and schedules for any bankruptcy filing within the last seven years and the discharge sheet for any type of bankruptcy (Chapters 7, 11, or 13)

9. Loan Request

• The purpose of the loan (purchase, refinance, consolidation, or expansion)
• Summary of calculations showing the requested loan amount (and financial justification for the deal for an investment property)
• Preferred type of loan with preferences for rate and term
• Statement of your ability to pay the loan back from proceeds of a sale or rental income

Once you have this documentation gathered, make several copies so you will have ready- made, loan-request packages for future loans (probably only requiring a few updates to bring the package current).

Applying for a loan can be time consuming and very frustrating at times, especially when the lender keeps requesting more and more documentation. However, if you spend the time now to put together a great loan-request package and then make sure you have all of the information the lender requests before you submit the package, you will increase your chances of getting a loan approval sooner rather than later. Be proactive and develop a good sales package that creates a positive image for you and your business.

In the next article on creative financing, down payment requirements for investors in this current financial market will be discussed. We will also discuss front-end and back-end debt-to-income ratio requirements and credit scores.

David Boyd is a real estate investor and owner of Wasatch Front Homes, LLC in Farmington, Utah, working in short sales and loan modifications. He is also a licensed securities agent with Regent Capital Group, specializing in 1031 Exchanges and tenant-in-common investments.