Real estate investment financing isn’t as easy as it used to be. People get rejected for loans that they can easily afford all the time.

Banks don’t want to make loans they can’t sell to Fannie Mae or Freddie Mac, so if you don’t meet their strict guidelines you could be out of luck. Many banks don’t even offer mortgage financing for investment property.

Ben Bernanke, former head of the Federal Reserve, famously announced that he was rejected for a mortgage. He reportedly had a net worth in the millions and earned at least $250k for a single public appearance, so if he can get rejected for a mortgage you probably can too.

Hard money lenders can approve financing for investment property quickly. We finance flips and other investment properties on a short term basis. Finding a deal worth investing in is the hard part. We’re expensive, but if you’re getting a great deal the cost is less important than the availability.

Hard money loans are simpler to qualify for because we base our loan amount on the property value, not the borrower. If you have 30% of verifiable equity on the day we make the loan, we can make the loan. We don’t even care about your credit (yes, seriously!).

There are only a few ways you can get rejected for a hard money loan to finance investment property from Little City Investments:

  1. Loan amount under our minimum, $100,000
  2. Loan to value needed is over 70%
  3. Not enough recent comparable sales to confirm the value
  4. No exit strategy: our hard money loans are 1 year only
  5. Homestead refinance: our hard money loans are strictly for real estate investment purposes
  6. IRS debt attached to the property

Real estate investment financing with a bank loan can be very challenging. If you qualify and have time to jump through the hoops though, bank loans are much cheaper than hard money. Banks also offer long term options that we don’t.

Here are most of the ways you can get rejected for a bank mortgage on investment property:

  1. Insufficient income
  2. Inconsistent income
  3. Income that’s not clearly on your tax returns for 2+ years
  4. Self-employed for less than 2 years (even if you have the income)
  5. Qualifying income is in a business entity
  6. Qualifying reserves are in a business account
  7. Income change from salaried to commission, freelance or other income
  8. Moving or withdrawing funds to/­­­­­from your bank accounts before closing
  9. Credit rating or credit score
  10. Length of credit history
  11. Foreclosure within the last 7 years
  12. Bankruptcy within the last 2-4 years
  13. Insufficient reserves
  14. Too many open mortgages
  15. Debt to income ratio (DTI) is too high
  16. Rental income needed to meet DTI (or other) requirements
  17. Too much other debt (even if you meet the DTI)
  18. Property value – appraisal or appraised value is too low
  19. Property is non-insurable for condition or any other reason
  20. Loan to value is too high
  21. Down payment is too low
  22. Down payment is borrowed
  23. Down payment is gifted
  24. Inexperienced loan officer
  25. Late response to requests for documentation
  26. Error on application
  27. Incomplete application
  28. Inaccurate application
  29. Late payment(s) on another mortgage
  30. Late payment(s) on other debt
  31. Large purchase made after the loan application but before closing
  32. Credit score dropped between application and closing
  33. Job-hopping
  34. Employment gaps
  35. Not enough consecutive employment in the same industry
  36. Quitting your job before closing
  37. Getting laid off from your job before closing
  38. Getting fired from your job before closing
  39. Condominium less than x% owner-occupied
  40. Condominium with too many vacant/unsold units
  41. Condominium owners x% delinquent on HOA fees
  42. Property is a non-warrantable condo by Fannie Mae/Freddie Mac for any other reason
  43. IRS debt
  44. Loan amount is too low
  45. Loan amount is too high

In short, banks have a ton of criteria for real estate investment financing. Hard money lenders like Little City simply don’t. Here are some tips for getting through the hoops of bank financing if you think you can swing it.

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