Workarounds and Exceptions WhenWorking with a Lender


by Nate Zielinski, RCN Capital

hen applying for a loan in hopes of securing a real estate

At RCN Capital, the only difference for Full Boat Interest would be that we charge interest on the full loan amount, both the initial advance and the renovation funds held in escrow. Also, there would also be a two per- cent increase to the interest rate of the loan. In a normal fix and flip loan scenario, interest is only charged on outstanding funds, not the renova- tion holdback. If the investor has faith in the property they want to invest in, and the interest rate increase is some- thing they are okay with, then this exception could be a very valuable one for investors to know about. If this exception strategy is used in the fix-and-flip loan program, the inter - est rate increase isn’t as harsh if an investor can complete the flip in 4-6 months since there are no prepay- ment penalties on that specific loan program at RCN Capital. LETTER OF EXPLANATION (LOX) When it comes to asking your lender for an exception or a work- around, a letter of explanation (LOX) can be a big help. Prepare and sub- mit a letter of explanation for any non-standard transactions when you submit required documents. Lenders are likely to ask for one when there are extremely large deposits, previ- ously allowed exceptions on current outstanding loans, or unusual back-

ground check flags. Letters of expla - nation are always a plus to submit for a drastically reduced purchase price as well. This can also be used for prop- erties where the purchase price is below our minimum property value requirements, but the as-is value exceeds our minimum requirements. This is more common with auction purchases or foreclosure properties, but a letter of explanation shows initiative to a lender and providing background information makes life for the lender much easier. Once they see an investor submitting an LOX on a consistent basis, they are more likely to work with them and go the extra mile to make an exception for the investor. Also, as a reminder, a letter of explanation (LOX) does not need to be an official document. Just type up an explanation using Word or a simi- lar program and submit it along with your other documents. DOES THE PROPERTY FIT NEIGHBORHOOD? (WHITE ELEPHANTSANDUNICORNS) This workaround is more of smart practice that borrowers should employ in a number of different scenarios. Whether it is a purchase and rehab, buying a potential rental or starting a ground up construction project,


investment property, there are always lender guidelines to keep in mind. These guidelines are crucial as they allow lenders to set a base- line of expectations for borrowers to meet when starting the applica- tion process. However, it can often be a smart decision to ask if a lender is able to offer or willing to discuss exceptions or workarounds for certain scenar- ios. If the lender shows extra effort and wants to come up with solutions to try and do business with an inves- tor, it is a great sign that you are speaking to the right one. Here is the second installment of workarounds and exceptions to keep in mind that RCN Capital offers and ones that another lender may as well. INITIALADVANCE BELOW MINIMUMREQUIREMENT FOR FIX & FLIPS This exception is crucial for investors to know about if the property value is at or slightly above $50k for 1-2-unit properties as there may be an issue with the initial advance on a purchase being below the minimum requirement of $50k for the program. This is an area where we are still able to lend on the property, but RCN would require full boat interest.

24 | think realty magazine :: september 2021

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