Investor · Jacksonville, FL · Member since 2019 · 97 posts · 50 votes
Hi fellow investors,
I recently listened to a thought-provoking On The Market podcast episode featuring Ben Miller from Fundrise, who raised an interesting concern. He mentioned that while many banks provide loan quotes, they often fail to follow through and close the deal. Has anyone else experienced this issue lately?
Ben's observations suggest a potential trend where banks are becoming more cautious and selective in approving loans, potentially due to market uncertainty and the looming possibility of a liquidity crisis.
Have you encountered similar situations where you received loan quotes but faced difficulties finalizing the loan and securing financing for your real estate investments? If so, how did you navigate these challenges? What strategies did you employ to overcome them?
How do you move forward and submit offers in such an environment when your reputation is on the line? Are you including a financing contingency clause in your LOI's?
Investor · Pittsburgh, PA · Member since 2015 · 1k+ posts · 1k+ votes
3y
@Gerardo Waisbaum I do a lot of business here in the Pittsburgh market. I find its best to have relationships with local lenders. Build relationships with them and talk to other investors and get recommendations from them for investor friendly lenders. It is a challenge and I do see it getting worse.
Real Estate Consultant · Reston, VA · Member since 2022 · 513 posts · 521 votes
3y
I’ve seen this happen firsthand. I used to work at Fundrise and beforehand worked at a commercial lender. A loan quote gives a prospective client information on how much the debt provider can lend, at what rate, and how much.
However, there’s several steps between a loan quote and closing. Commercial lenders go through an extensive underwriting process and there’s lots of scenarios when during UW lenders will find something that will make them unable to lend.
In addition, banks are sending out loan quotes all the time. If all of the quotes they issued turned into term sheets then turned into closed deals, the bank might not have enough liquid capital. In economic times such as these with a lot of fear in the market especially from banks after what happened with First Republic, SVB, etc. I’m positive that there will continue to be restrictions with banking and not all banks will lend on all quotes that were issued.
Investor · Jacksonville, FL · Member since 2019 · 97 posts · 50 votes
3y
Thank Jamie. It's true that the underwriting process is crucial, and lenders may uncover factors that prevent them from finalizing the loan. However, what I'm referring to is a specific anomaly where lenders retract their commitments just before closing, often due to liquidity constraints or market uncertainties. It's a situation that seems to be affecting many investors.
We continue submitting offers. Fortunately or unfortunately, depending on how you look at it, they are not being accepted so we didn't get to the closing stage (we are pretty conservative on our underwriting). In the past, we had no issues closing deals.
BTW, I'm talking about apartment complexes of 50 units and above.
Investor · Pittsburgh, PA · Member since 2015 · 1k+ posts · 1k+ votes
3y
@Gerardo Waisbaum I do a lot of business here in the Pittsburgh market. I find its best to have relationships with local lenders. Build relationships with them and talk to other investors and get recommendations from them for investor friendly lenders. It is a challenge and I do see it getting worse.
I recently listened to a thought-provoking On The Market podcast episode featuring Ben Miller from Fundrise, who raised an interesting concern. He mentioned that while many banks provide loan quotes, they often fail to follow through and close the deal. Has anyone else experienced this issue lately?
Ben's observations suggest a potential trend where banks are becoming more cautious and selective in approving loans, potentially due to market uncertainty and the looming possibility of a liquidity crisis.
Have you encountered similar situations where you received loan quotes but faced difficulties finalizing the loan and securing financing for your real estate investments? If so, how did you navigate these challenges? What strategies did you employ to overcome them?
How do you move forward and submit offers in such an environment when your reputation is on the line? Are you including a financing contingency clause in your LOI's?
Looking forward to your valuable input!
We don't always include the financing contingency, but are just prepared to lose hand money if that goes south. Depends on how competitive the deal is.
That being said I think if you don't have a relationship with a lender it's hard. It's a bad time for people who like to bounce around from bank to bank compared to people with well established relationships.
They also like to see deposits. If you have money in a deposit account with the lender they generally will be more receptive to your situation.
Ask you lenders what they want to do deals before you have a deal and things will go smoothly. The bigger presence that a specific lender has in the area of the property the better also.
Investor · Kansas City, MO · Member since 2020 · 400 posts · 278 votes
3y
From their initial quote yes, because generally there is a longer underwriting process that needs to then take place. Also during escrow the financials of the property change month to month, so if the seller isn't able to collect certain revenue or keep certain occupancy, that throws off the lenders underwriting and can change the terms.
Lender · Denton, TX · Member since 2023 · 349 posts · 80 votes
3y
Hello Gerardo,
Happy to answer your questions. What many people miss is that a quote is a quote and nothing more. Banks/lenders quote all day and some may not be honest because they want to hook you in and make you a customer.
Nothing is official until you get an official rate and terms sheet/loan estimate, as wall as talk to someone with the bank/lender who goes over their loan pricing and what your options could be. Also, even when a lender can lend, if you fail underwriting you may not be qualified for the loan.
So ask them for an official loan estimate.
You also have mentioned that banks are become more selective. Absolutely true. With interest rates quite high now, lending is risky to banks so they will be more selective. I would also say if you want to increase your chances of getting some financing options despite all these current market situations I would recommend you call a local mortgage broker near you.
Mortgage brokers unlike banks are able to shop multiple banks/lenders to find you options. Usually, the more banks/lenders they can call, the better your option of finding someone who will approve your financing request as well as finding the best financing offer(interest rates, terms, etc) despite the current market conditions.
I hope some of my answers were helpful to you. Best of luck!