How to Apply for a Rental Loan in 3 Steps

By December 23, 2020 March 7th, 2022 Investor Top Picks, Real Estate Investor Tips

Learn how to get approved for a rental loan in three simple steps, plus tips on how to speed up the process.

Steps for Applying for a Rental Loan

Real estate investors who are looking to purchase properties and become landlords may consider financing options to cover the costs. One of which is applying for a rental loan from a private lender or hard money lender. However, for investors unsure what the application process is or what documents and information they’ll need to provide, look no further. This brief overview will provide insight so you’ll be ready to apply for that rental loan.

Step 1: Understand What You Need
Step 2: Complete Application
Step 3: Upload Documents

Step 1: Understand What You Need

Make sure to review your cash flow and how the financing will change your current and future financial position in the property. After carefully considering the best rental loan option for your portfolio, there will be information you will need to provide for a lender to underwrite. The types of information you will need to provide for a rental loan depends on the type of lender that you choose. A conventional bank will require more information than a private lender.

  • Application

    Every lender requires an application to be completed. We’ll touch upon this in more detail in step two.

  • Photo ID

    This is straightforward. Most commonly used documents are driver licenses and passports.

  • Bank/Brokerage Account Statement

    Many lenders have requirements surrounding the borrower’s liquidity. In short, liquidity is how much cash the borrower has on hand to use in the transaction and to make payments after closing.

  • Schedule of Real Estate Owned

    This is a breakdown of all of the properties you own. The schedule of real estate owned (REO) helps the lender understand your experience, the types or properties you invest in and the profitability of your rental portfolio.

  • Entity Documentation

    Since rental loans are for a business purpose, many lenders require the property to be owned by an entity. The most common documents are articles of incorporation, operating agreements and certificate of good standing.

  • Current Lease

    The lease of the property shows the rent and a bit of information on the tenant. Don’t worry if you do not have a lease in place or have a short term rental, a lease is not always necessary for a rental loan.

  • Insurance Information

    There are usually a few insurance minimums a lender will require to cover the property in case of emergencies. More than likely, the lender will ask to be added to the policy as an “additional insured“.

Other documents may be requested based on the individual circumstances and collateral.

Make sure you have your questions ready – we’ll provide a few at the end.

When applying for a rental loan, you’ll need to know where you stand before you show that information to a lender. Make sure to account for concerns like cash reserves and emergencies.

Step 2: Complete Application

Now that you have the information you need to get started, it is time to put some information on a form and formally apply for the application. Most lenders have an online portal or application so you do not have to worry about having the right technology to complete on your computer or device. Most rental loan applications have multiple sections. Below we will highlight the parts of a rental loan application and how the lender looks at the application.

Borrower Information

This section is straightforward. This is where the borrower enters in general personal information to provide a profile for the lender. Make sure you know your credit scoreAll lenders have minimum credit score requirements and you want to make sure you are in the clear at the beginning. The same can be said if you have any criminal background. Ask all the hard questions on the front end, so you are not surprised during the underwriting process.

  • Name
  • Current Address
  • Contact Information
  • Experience
  • Social Security Number
  • Estimated Credit Score

Property Information

This section provides insight into the property to begin the asset evaluation process. The As-is value is generally an estimate at this point (unless you already have a recent appraisal) and plays a significant part in the amount of money the lender will offer you. Be sure to understand any property specific (multi unit) rules surrounding values prior to ordering an appraisal.

  • Property Address
  • Property Type
  • As-is Value
  • Loan Purpose
  • Monthly Cash Flow

Declarations and Acknowledgements

Be sure to always read the entire application, even the fine print. All rental loan applications will ask the borrower to declare if there are particular financial and personal situations pertaining to the borrower. Each lender has their own independent criteria and review the borrower’s application in full prior to moving forward. The most common declarations pertain to the following situations.

  • Outstanding Judgements
  • Recent Bankruptcy and Foreclosures
  • Resident Status
  • Confirmation of Non Owner Occupied
  • Other Debt in Default

Step 3: Upload Documents

What Are the Benefits of an Online Portal?

Depending on the lender you choose you may have access to a borrower portal. Using a secure portal, borrowers now have the capability to easily interact directly with the underwriter responsible for reviewing the provided documentation. It is an effective and efficient way to answer any borrower questions and provide continued insight into the tailored lending process.

  • Apply Within the Portal
  • Document Level Instructions
  • Communicate Directly with Underwriting
  • Access All Documents in One Place
  • Enhanced Awareness of Timeframes

The key goal of the secure borrower portal is to provide a single point of access for the borrower to obtain work directly with the underwriting team. The portal leads to much faster closings and enhanced communication from both sides, throughout the entire process.  

What Other Questions Should I Ask the Lender? 

In applying for a rental loan, you want to make sure you are asking all of the right questions. Every borrower has different needs but there are constants that should be important to every borrower to evaluate their financing opportunity. Make sure you have all the answers before ordering an appraisal or paying other up front costs.

  • What are the terms?
  • What is the funding timeline?
  • What are the closing costs?
  • Is there a penalty for early repayment?

The lender should be transparent when you are asking for answers. Make sure you have a full understanding of the details of the loan.  If at any time, you feel uneasy in the answers you are receiving, you may be speaking to the wrong lender.

You’re Ready: Apply for Your Loan

LendSimpli makes applying for a rental loan easy and clean. You can access your secure borrower portal and begin by filling out the application. Within the portal you will clearly see the documents you will need to upload and where they should go. If you have any questions, you can message our team directly from your secure borrower portal.

Most borrowers looking for a long term financing options to help grow their rental portfolio can choose a 30 year fixed rate rental loan. This loan program can be used to purchase new rental properties or to refinance properties that are currently owned. Use what you have learned here and apply now and get a quote tailored to your situation.