Loan denied: These are two words that nobody wants to hear, especially when trying to close a real estate deal.
This can be especially frustrating after you have put in the time and effort to meet all of the bank’s requirements and waited for the underwriting process. This is precious time lost.
Understanding why your loan request was turned down is essential for determining the next steps. Knowing the options available to you is key to choosing the right path.
Common Reasons for Having a Loan Denied
Banks can deny loans for a range of reasons related to the borrower, the property, or both.
Issues with the Borrower
Most traditional banks are limited by regulations, so they can only provide loans to people who meet a certain combination of criteria
You might be denied if you have:
- A credit score that is too low or a bad credit history
- An inconsistent income history
- A debt-to-income ratio that is too high
- An unstable employment history
- Previous bankruptcies
- No seasoned funds
- Lack of tax returns
- Underreported income
Issues with the Property
Bank loans for real estate are subject to regulation, and you may find it difficult to secure a loan if the property has certain characteristics, including:
- Condition of the property, poor condition or lots of deferred maintenance
- Second home or rental
- Occupancy issues
- Unpermitted Units.
The condition of the property is a common reason a lender denies a loan application. This can be especially challenging for investors who want to capitalize on the probate market or purchase homes that are dated and need rehab before they can be flipped or rented. Fortunately, you have other options for securing funds for investment properties.
What to Do When You Learn Your Loan Was Denied
If you’re left scrambling to come up with a solution when a loan has been denied, you have a few options. Start by asking questions. Find out why your loan was denied so you can have a better understanding of the possible pathways ahead of you. Depending on the reason for the denial, working with another traditional lender may or may not be an option, especially if you are trying to secure funds for an investment property or fix-and-flip property.
One thing you do know is that it will take a lot of time to go through the whole process again. If you don’t have the luxury of time, or if you’re not confident that a loan is possible through a traditional bank, know that you have other options.
Start by researching reputable hard money lenders to find one that serves your state. Gather your financial information, which should be easy since you’ve already done it for a recent loan application. Hard money loan requirements typically include:
- Equity to back the loan
- A plan to pay off the loan
- A few minutes to apply online
Once you have submitted an application, hard money lenders are typically able to move very quickly to determine whether you have been approved or not—some can even close as fast as five days.
Loan Denied? Socotra Capital to the Rescue!
Loan approved: Two words you’ll be thrilled to hear.
Socotra Capital offers hard money loans in every state for a range of purposes, including purchasing rental property, fix-and-flips, commercial bridge loans, and more. Our approval and underwriting processes are lightning-fast, and we’re often able to provide funds when traditional lenders are not. We’re also home of the Turbo Close®, an expedited process that allows you to get financing in five days or less.
Want to learn more about how hard money can work for you? Download your copy of The Borrower’s Guide to Process, Preparedness, and Timeline today.
