Most real estate investors recall 2008 when home prices were falling, and home sales seemed to come to a complete stop. At the end of 2022, some investors are starting to wonder if we’re in for a repeat of 2008’s recession thanks to the most current housing stats at the end of December 2022 (source: National Association Of Realtors):
- Existing homes sales have fallen for the tenth month in a row
- The median home price fell from $413,800 in June of 2022 to $370,700 in November of 2022
Homes are sitting on the market for more extended periods of time
These numbers certainly show some cooling down from the red-hot market that took off in 2020. However, savvy investors know that there are opportunities in every stage of a real estate cycle and hard money lenders are still willing to partner with investors when the numbers prove a good fit for their lending company.
Once you’ve performed your due diligence on a property and found that the numbers make sense for your investing strategy, the next step is to secure funding. Hard money lenders still want to put their money to work, but in a cooling real estate market there are strategies you can use to make it through the underwriting process and receive funding for your project.
What Is Underwriting?
When it comes to real estate investing, underwriting is a process that minimizes the lenders risk by investigating a buyers’ or investors’ finances. The extent of investigation and underwriting process vary from lender to lender, but some things that are commonly checked during underwriting include the following:
- A buyer’s credit report
- Financial records
- Appraising collateral
- Income and debt assessments
Savings and assets assessments
When the market is cooling down, lender’s enthusiasm might cool down with it. If inconsistencies or red flags are found during the underwriting process, it’s likely an investor could lose their funding. However, the following tips increase your likelihood of successfully attaining funds from a hard money lender, even in a down-trend economy.
Clean Up Your Credit
In a good economy, you might find hard money lenders seem uninterested in your credit score. This can shift when the economy starts slowing down. Cleaning up your credit and raising your credit score only gives real estate hard money lenders a reason to say “yes” to funding your project.
Bonus Tip: Your loan approval starts long before you’re scouting properties. Adopt healthy financial habits, keep meticulous business and financial records, and strive to see your credit score soar to the top!
Be Upfront And Provide Everything The Underwriter Requests
It’s easy to acquire a financial “whoops” that you wish never happened. Whether it’s a bankruptcy, missed payments, or any other unflattering financial event in your history, it’s best to be upfront with your hard money lender from the beginning. That way, they can notify underwriting and look for ways to work with you with all the cards on the table.
Trying to hide any financial mess will likely end up as a red flag when the underwriter discovers it on their own, which decreases chances of receiving funding.
Organize All Documents And Records
Hard money lenders move fast. In fact, at HouseMax Funding, we like to close in ten days. When you have all your financial and legal documents organized and ready to share before reaching out to your preferred lender, the underwriting process is much smoother.
Bonus Tip: There’s no such thing as being too prepared when seeking funding in a slowing economy. Any records or documents that you organize and have ready could serve in closing your real estate investment loan.
Bring The Numbers To The Table
Hard money lenders want to put their money to work, but only if they are confident they’ll see it back – with an upside. With a slowing economy, having documents that reflect your due diligence can ease any hesitation a lender might have. Have itemized quotes from your contractor, financial projections, market analysis, and cap rate calculations at hand during the application process. This way the hard money lender knows you’re not blindly walking into an investment after watching too much HGTV.
Think Beyond The Numbers
Yes, real estate comes down to cold, hard numbers. It doesn’t make sense for you to invest or for a lender to finance if the deal won’t make money. However, real estate is about so much more than money: it’s about relationships, communities, and local culture. Investors are wise to keep in mind that nurturing relationships for win-win-win scenarios in real estate investing is a powerful thing to do. It builds your network, and if it’s done right, creates a rising tide that raises all boats.
A network can be powerful, especially in a pinch. If you run into trouble passing through underwriting, having someone in your network that could supplement any shortcomings makes the difference between a dead deal and moving forward on an exciting project.
At HouseMax Funding, we are here to fund your real estate projects. Please contact us with questions or with a deal that you’re ready to move on! Call us at 206-569-1132 to get started.