A lot has changed in the past year or so, including how residential mortgages and commercial real estate loans are handled. Many processes have gone digital, competition has increased as more people are relocating or seeking larger homes to accommodate remote work and learning, and mortgage rates remain at historic lows.
If you’re considering a real estate loan in 2021, it helps to know what to expect, especially in such a competitive market. Investors and business owners are coming to the table with cash offers, and if you can’t do the same, you could be missing out on valuable opportunities. People relocating from larger metro areas into smaller markets are also overbidding, so if you can’t compete on price, speed might be the edge you need.
Commercial lending challenges will continue.
In the early days of the pandemic, banks were swamped with requests for Paycheck Protection Program (PPP) loans. Although the bottlenecks have loosened, resources are still strapped as banks continue to navigate the operational challenges of processing forgiveness applications and additional PPP rounds.
Banks also now have more risks to weigh, including how much a business is relying on government stimulus and the likelihood of them remaining operational in the long term. As a result, underwriting processes are evolving, and many banks are saying no to more deals. Even as the nation gradually returns to prepandemic activities, securing a commercial loan remains difficult, especially in the more volatile and still uncertain office, retail, and hospitality sectors.
Residential interest rates will remain low.
In the residential sector, low interest rates are prompting home sales to be higher than they have been since before the recession. However, if you’re trying to get a real estate loan for an investment property, these low mortgage rates might not be an option.
Properties must meet certain criteria to qualify for a traditional mortgage. Borrowers also have to meet certain standards, including good credit history and solid income history. For many people, one or both of these financial factors could have been impacted by the pandemic. If you are looking to fix and flip, invest in rental properties, or buy commercial property, you likely need to seek an alternative source of cash.
Approval times will remain slow.
Despite the transition to digital processing, approval times have not sped up. In fact, they have slowed, so be aware of this if you are planning to make an offer. Ellie Mae showed that in October 2020, on average, it took 10 days longer to close a loan compared to the previous year, largely because lenders are swamped with applications. In addition to price, sellers are also mindful of the time to close, so buyers with a faster path to closing are often given priority.
Intense competition will continue.
Although approval times have slowed, the time to contract is getting increasingly shorter. Competition is fierce, and if you want to scoop up an investment opportunity, you need every advantage you can get. With cash deals and overbidding on the rise, many investors are getting squeezed out unless they change their approach. Having the ability to make an all cash offer could give you just the edge you need.
Get a real estate loan through Socotra Capital.
Securing a real estate loan with Socotra Capital can give you an edge if you’re looking to buy an investment property. We offer fast approval times to qualified borrowers so you can close a deal in days—not weeks. Hard money loans also offer flexibility that you can’t get with traditional lenders. For example, many property types are eligible, including fix and flip, commercial, and rental properties. Additionally, loan amounts and eligibility are based on equity, not financial history or credit report, so even if your finances have been impacted by the pandemic, you still may be able to get a real estate loan.
If you’re new to hard money and still have questions, we have answers. Check out our Borrower’s Guide to learn more about how to secure a hard money real estate loan.