Even though most people make one or two real estate purchases in their lifetime, the lender’s office can be an intimidating place to visit. Some would rather sit in the dentist’s chair! But with a handful of tips and some “inside information” from this article, you’ll be well-prepared and a lot more confident when you walk into your next meeting with your Ag or Commercial Lender, and it may even be more effective and enjoyable!
1. Start the relationship early
If you have plans to buy real estate, whether it be agricultural or another investment property, you have most likely been considering this purchase for some time. Don’t wait until you think you’ve figured everything out to start communicating with a lender. As you start to explore your purchase options, involve your lender. Begin with a conversation about the type of investment you plan to make and share a rough timeline of when (you hope) the investment will take place. During this same initial conversation you also should gather information from the lender about their processes and procedures. More than likely they will discuss their internal policy limits for loan-to-value, cash flow expectations, and other underwriting criteria for the planned asset type. At this time you can also inquire about the required documents needed by the leading institution to begin underwriting the loan for your investment. These documents could include but may not be limited to tax returns, business and personal financial statements, rent rolls or contracts, or other items. This early-on correspondence, which can be in person or via e-mail, should be valuable to each party as no one likes surprises in any loan process.
2. Create a narrative
A “narrative” is a short synopsis of who you are, what you do, and what your goals are. This will be added to your file and can be extremely valuable to your lender. Most lenders and financial institutions put together individual reports summarizing their analysis on every single one of their (potential) This report usually contains a section of borrower background, bio, and updates since the last review. By providing your lender a short narrative about yourself, their underwriting process will be expedited. This can also be done in the early stages of communication. Information to include in your narrative may include:
- Current employment/income sources
- Family or marital status
- Industry Experience
- Similar investments you’ve made before
- Significant changes to year-over-year
- Financial goals
By this point you should have a relationship established with a lender who is ready to partner with you for your investment. Keep in mind though, this process doesn’t need to be limited to just one individual lender or lending source. If you would like to involve competition between lenders, tips 1 and 2 maybe replicated over and over again.
3. Share the details
The next tip for an effective lending relationship is to share as many details as you can! If you have identified a specific asset to purchase, provide that information to your lender. These details are essential for underwriting a loan used for acquiring agricultural or investment real estate Information to share includes (but is not limited to):
- A way to identify the parcel (address, legal description, survey, etc.)
- Income information (historical information, annual property-related expenses, net income projections)
- Loan needs (borrowing amount, target rate and terms, etc.)
Most everything listed here can be provided to the lender after an offer is made or during the due diligence time period. The exception to this is for real estate purchased at auction. Most real estate auctions announce the sale is to be competed without any financing contingencies which means providing your lender the information above for pre-approval needs to be completed before the auction sale date. This information may also give the lender a chance to point out a deficiency that has been over looked which could prevent you (or the financing entity) from making a poor investment choice.
When the offer has been accepted, you have your lender’s commitment letter in hand, and it’s time to complete your transaction, make sure to keep the lines of communication open! Don’t stop now! Continuing open communication will help this transaction finish as smoothly as it started. Make sure your lender has the contact information for your real estate agent, attorney, and whoever else will play a role in completing your purchase, and make sure everyone is introduced to each other (even if through email). The more everyone is kept up-to-date with the process and details, the more likely your purchase will happen on time and without any hiccups!
5. Follow up
Whether or not your plans are to buy more agricultural land or investment property in the future, stay in touch with your lender. This doesn’t need to be done weekly or even quarterly, but at least once a year you should check in with your lender and make sure you’re on top of your loan. Even if you have no new purchases on the horizon, it’s more than likely your lender has a requirement for ongoing reporting and collecting updated financials. The annual check-in is the perfect time to update your narrative, too. Did anything change in the last 12 months (New job? New family member? Large inheritance?)? These updates will be different for all investors, but are usually required to keep your loan in good standing. Also when you volunteer this information responsibly, it can position you as a good customer for now and the
Every lender is different and they may all have slightly different requirements. By no means will these tips guarantee you a loan approval or the best interest rate on the market. However, my hope in sharing these tips is that they will help to take out the “intimidation factor” of the lender meeting, and to create a good relationship between you and your lender that is respectful, comfortable, and maybe even enjoyable! Happy investing!
Written by Tanner Winterhof
Tanner Winterhof has been a VP Ag & Commercial Lender in Central Iowa for 10+ years. He has a strong back ground in agriculture through his family’s farm and a Bachelor’s Degree in Business Administration and Financial Services to add to his years of experience in banking.