What lenders look for in lending to a new investor

[Kevin Dureiko]

Hello all! I've only been on BP for short time now but the overwhelming positivity from all of you is amazing. I've been overwhelmed with general inquiries and great conversation from new and seasoned investors. I have received many of the same questions from those who are just getting into to their first flip or purchase, and I thought I would give a little insight as to what makes a good deal from a lender's point of view. Lenders look for a few key things with a newly minted zero-deal investor. - Credit score. Now this number is not as scary as most would assume, it's WHAT makes the number. I'm looking for trade line information. Have you been 30+ past due on a mortgage note? Tax liens? Bankrupcy filings? Debt to income can have an effect depending on how lop sided it is. - Other income sources. A new investor breaking into the flip market that has a career and a solid W2, can compensate for many other factors. In fact when those whom I'm close to ask me for advice as to how to get into investing in real estate. It's one of my first suggestions. "Show the lender you can pay them back". - Deal size. This one isn't as cut and dry but a inexperienced investor trying to start out with a risky huge project, generally makes us look harder at the deal. Start smaller, make some money, and establish your pattern of success. Some deals this won't matter because it's a home run either way, that's why it's not cut and dry. -Taxes. We just want to see that you've paid your taxes. Nothing makes a lender run like knowing the IRS can seize a property we've financed. - Cash reserves. We want to know you have some cash to fall back on. It can be liquid, stock, 401k, other accounts etc. Cash for closing and some left over, usually 10-15% of the deal in reserves is great. I hope I've given just a little insight to what lenders look for. This list isn't all encompassing, but those are some staples that make a deal smooth and doable for the newly minted.

[Kevin Dureiko]

Sahana R. My advice is keep accumulating cash reserves or to look for a deal that can bring you down to your current cash level.

Even with the best financing generally you're still on the hook for some costs at closing, and most lenders want to see you have a reserve for carrying costs. I wish I could be more specific for you, but a lot of the figures are on a deal to deal basis.