By Chris Parks
There are many different types of banks and when it comes to lending money to real estate investors, each serves different customer needs. For our purposes, we will divide banks into three main categories: Nationwide, Regional, and Local.
Many of the nationwide banks offer several lending products to assist homeowners, commercial investors, real estate developers, and more. These large institutions provide many consumer and commercial mortgage businesses with several options. In the beginning however, for the most part they offer little or no flexibility for the short term real estate investor. Do not totally discount them though because once your business is established you may be able to secure a business line of credit.
Regional banks are smaller and often have several branches spread across one or perhaps several states. Local banks are similar but normally have even fewer branches than regional banks. These are the two types of banks that provide real estate investors the best options. Why?
Because these are portfolio lenders, which means that these banks hold the loans "in house" (as opposed to nationwide lenders who normally sell the loans to a secondary lender). This gives smaller banks the utmost flexibility to set terms and guidelines. They will often determine whether or not to loan money after they assess a borrowers' financial situation and the deal. These lenders will require a borrower to fill out a loan application, provide tax returns and pay stubs; they will also analyze a borrowers' credit. Likewise you can arrange a meeting directly with the President of the bank or the person who actually makes the funding decisions.
For the most part, this is not a quick process. It will often take 30-60 days for the process, especially for first-time borrowers. However, the overall costs and rates are comparable to the larger banks as opposed to fees imposed by Private Money Lenders.
It's worth noting too that not all regional and local banks operate under the same lending guidelines. Because they are independent of larger corporations, they have different underwriting rules, lending criteria, and risk evaluation. They also offer different rates and fees. Real estate investors need to first find the right kind of bank to borrow from and then find out what the lending requirements are to see how you can match those requirements.
The easiest place to find out which banks have the type of product(s) you are looking for is to go to the real estate investors who are already borrowing from them. Attend your local Real Estate Investor Association (REIA) meetings to find other investors who are borrowing money from local or regional banks.
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