Real Estate Financing — Market Update Q1 2021

Alright, so it’s now Q1 2021 and we want to give real estate investors an update on the market when it comes to financing. Particularly when it comes to financing small 2-4 unit multi-family projects like the ones we do here at FIG.

We’re about a year into the pandemic. How has that affected lending? Is it harder to get loans? Is lending still available?

We took a lot of phone calls, for several months, saying, “I think investor-facing financing is going away…” “the ability to purchase investments is going to get tougher…” And you know what? It looked like it might for a while. In April, May, and June of 2020 there was a lot of discussion about whether lending guidelines were going to get more strict and whether it would be more difficult for investors to get financing.

What happened is documentation requirements have become a little more strict. If you’re self-employed, instead of getting just two-years previous tax returns, we’ve now had to get a P&L that’s current through the most recent month to make sure that your business is still operating and money’s still coming in. We also collect a couple more months business bank statements for individuals who are self-employed.

For the most part, nothing else has really changed. Interest rates are still great. There have not been any risk adjustments for investment properties where the rates are now looked at disproportionately because it’s an investment property vs a primary residence. And as a result, the market has been functioning very normally.

We’ll continue to monitor that. But as a whole, there’s not been that much of a difference on the investor financing side other than you get to spend an extra 20 minutes chasing down some additional documentation.

If you are self-employed and your business is closed, or revenue has dropped substantially, (let’s say substantially is 50% or more) it may be difficult to get financing. This is because lenders will want to see that your revenue or ability to bring in a business as a company has gone back up. That’s one of the only places where it could be problematic—that’s tracked in real time a little bit more strictly.

Other than that, things are functioning well and we’re getting investment property loans for investors pretty regularly and business as usual despite the pandemic.

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