How to Negotiate With Lenders to Get the Best Real Estate Loan

This post was provided by Jimmmy Moncrief, an investor and lender. He is a very active real estate investor and has a great website at Jimmy is a bank credit officer and gives some great insider tips on how to negotiate with lenders to get the best loan. I hope you enjoy!

If you are serious about expanding your real estate company, you are probably going to need multiple funding sources. The majority of real estate investors rely on banks. Since I’m a credit officer at a bank that’s what this article is going to focus on.

1. Approach the Loan Process Backwards

Most real estate investors approach the lending process completely backwards. They find a deal, get a contract, then try a shotgun approach and contact every bank they know trying to get a loan.

Interestingly enough, professional real estate investors do the exact opposite.

They get referrals from other real estate investors for bankers (note: not just a bank).

They then ask the banker what types of loans they are looking to make.

Then, and only then, do they bring-up rates and terms.

By doing this, you will not only save a ton of time, you will be investing in a relationship.

You should have at least three banks that are looking to make loans in your real estate investing niche.

 2. Have a Plan for building your Real Estate Business

I know this sounds basic, but let me explain.

Do you want to buy 100 properties like Mark Ferguson? Let them know this and show them your cash-flow on how you are going to achieve this plan.

Note, the more audacious the goal, the scarier your lending profile will be. However, if you have a plan, you will show your lender that you have done the homework and give your bank a higher comfort level.

3. Pitch the Loan to Your Lender

At this stage you should have a contract on a property and should contact the banks you found in step one. When you get in-touch with your banker over the phone you need to address the following:

Collateral Value – Appraisal Value of the Property.  Note, for regulatory reasons banks need to keep a 80% LTV.  If you are going to break this limit, offer a second position on another property.

Cash Flow – What is the repayment strategy of the loan? If it’s a long-term rental, the loan need will be drastically different from a short term fix and flip loan. Banks need to match the maturity of the loan with the repayment cycle. Also note, you should know what formula for debt service coverage:

Keeping it simple – the cash-flow of the property should be at least 1.5 times the debt service.  Meaning, you should be making a net operating income $1,500 for $1,000 in debt service.

Conditions – Why is there a need for this type of business that you want a loan on? For example, I buy rentals and I always explain how there is a shortage of rental housing for college students due to a dorm shortage at a local university.

I advise explaining all of this over the phone, and then following up in an email so the banker has a written reminder.


Assuming you have pitched a loan that the given three bankers wanted within the parameters they gave you, you should hypothetically have three bankers now competing for your deal.

Do you see how easy that was? Of-course it’s harder in real life, but you reversed the whole process and now instead of the bank being the prize, you are the prize and they are competing to fund your deal.

One last thing. DO NOT burn bridges.

The best-way to turn someone down is to simply say: “Thank You for the offer, but I actually already got a __ offer from ___ bank.”  Could you beat that?

If they can’t, don’t force the issue. Thank them again.

Please understand the time-value of money. I work at a community bank and our loans are typically higher by a hundred basis points. However, we also close very fast. We lost an apartment deal and the investor went with a large national bank. I ran into him six months later, and they still haven’t closed! He was going to profit over $6,000 a month with these apartments that were already leased. That means he has missed out on $36,000 to save $3,000 in extra debt service.


  1. Ben Leybovich October 23, 2013
  2. Jimmy Moncrief October 22, 2013
  3. investfourmore October 22, 2013

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