A PFS is a document that communicates your financial strength, your ability to make payments, and your available funds. It states your assets, your liabilities, and your income.
Here’s our quick start guide to creating, understanding, and using your PFS to open doors to real estate financing.
What’s a PFS?
Your PFS is a snapshot of your financial position. It lists your assets, liabilities, how much you’re earning and how much you’re spending. It’s your personal balance sheet and income statement combined. It’s like a financial resume; an important credibility tool that will help you scale.
A strong, organized PFS builds credibility with your lender. Also, it’s a helpful document to track your net worth over time. Lenders want to see an ability to pay the loan, but also the financial strength to weather a deal that takes much longer than anticipated (which is a lot of them).
💡 Pro Tip: Don’t send your lender an outdated statement. Your PFS should be updated right before you send, no more than 2 weeks backdated. The more complete and up to date your PFS is, the more lend-able you will be.
What are lenders looking for?
Many conventional lenders will want to see a personal net worth (PNW) equal to or above the loan amount and post-closing liquidity of 10% of the loan amount.
For example, on a $3MM loan, they’d require a $3MM net worth (yourself or combined with your team) and $300,000 in liquid assets after the deal closes.
💡 Pro Tip: In effect, stocks, checking and money market accounts are normally considered liquid, but retirement funds, crypto, and home equity are usually not.
What about hard money lenders?
Unconventional lenders, Little City included, don’t have strict rules for net worth or liquidity. We ask for a PFS for any loan request over $500k, but we’re looking for an ability to pay, not forcing you to meet a hard and fast number for reserves or personal net worth (PNW).
🚨 Flexible PFS, PNW, and liquidity qualifications are one of the (many) benefits of working with a hard money lender instead of a conventional bank lender. Also, smart investors know when to use both.
How can a PFS help me?
A clean and clear PFS can reduce lender questions, demonstrate that you’re a true professional, and accelerate underwriting. Especially on partnership deals, clean and clear PFS statements can make or break the deal.
When a lender trusts your PFS, they trust you. A complete, detailed PFS leaves the lender without any questions and fast tracks your file. Expedite the underwriting process and make it easier for a lender to approve you.
A well-organized PFS is a powerful tool that sets you apart. Therefore, if you’re serious about wealth building with real estate, you need to get your head around your PFS.
We’d love to lend on your next Texas real estate investment, especially if you have a well-organized and recently updated PFS to send us.
Here’s a link to download our PFS template if you want to get started. Once you’ve completed your PFS, you can apply for a loan at this link.
What are the sections of a PFS?
- Sponsor information
a. Name
b. Home address
c. Phone number
d. Email address
e. Business name
f. Business address
g. Business phone
h. Date of birth
i. SSN
j. Name of spouse
k. SSN of spouse
l. Number of dependents - Effective date for your PFS must be included in the document (Statement of Financial Condition as of _____ )
- Assets
a. Cash in checking, savings, CDs
b. Securities
c. Cash value of life insurance
d. Retirement accounts
e. Accounts and/or notes receivable
f. Homestead real estate
g. Non-homestead real estate – list all properties, values, and equity
h. Private business interests (companies or equity in companies)
i. Valuable personal property (vehicles, art, other) list only if significant - Liabilities
a. Mortgages
b. Auto loans
c. Business loans
d. Credit cards
e. Student loans
f. Loans against retirement accounts
g. Lines of credit
h. Other personal guarantees - Net worth: your assets minus liabilities
- Contingent liabilities – any obligations you’ve guaranteed, even if you aren’t paying on them, belong on your PFS
a. Guarantees on business/other loans
b. Co-signed credit or lines of credit
c. Letters of credit
d. Legal obligations or pending settlements - Personal income statement
a. W2 salary or self-employed earnings (gross annual salary)
b. Spouse W2 salary or self-employed earnings
c. Rental income from real estate or other (gross annual)
d. Business distributions
e. Dividends, capital gains income
f. Pensions or annuities
g. Other income
h. Total income - Personal expense statement
a. Income taxes
b. Mortgage payments – debt service
c. Property taxes and insurance
d. Business or investment requirements
e. Loan payments
f. Living expenses
g. Child support, alimony, tuition
h. Other expenses
i. Total expenditures - Net cash flow (income minus expenses)
- Disclosures if applicable – if in doubt, disclose it on your PFS
a. Tax liens
b. Bankruptcy filings
c. Litigation or other legal issues pending
d. Outstanding letters of credit
e. Pending divorce or settlement
Apply online for funding with Little City Investments – quick, 3-minute application. We aim for same-day term sheets. Flexible lending criteria and asset-based loans for Texas real estate investors. Quick closings with minimal documentation.