4 Reasons Real Estate Investors Get Rejected for a Mortgage

Real estate is considered one of the most lucrative forms of investment. It has a steady cash flow, usually appreciates in value, and can be owned indefinitely. Almost anyone can start a real estate investment company, but it takes skill, research, and a strong understanding of the industry to make it profitable.

Real estate investment companies often approach wealthy investors or they apply for commercial real estate loans to buy investment properties. Gaining approval for a mortgage on an investment property or commercial property can be more complicated than primary residences.

Here are 4 of main reasons why your commercial real estate loan application can be denied:

  1. Poor business credit ratingBecause secondary mortgages and loans on investment properties are considered riskier to lenders, it is imperative to build and maintain good business credit. Make sure your business credit reports have strong credit scores and reflect positive payment patterns. Inquire with each lender about which business credit reports they look at.

    Many commercial real estate investment companies also rely on outside wealthy investors. Most investors check business credit to make sure they are working with a financially stable company. If bills go unpaid or your company lacks business credit history, it will make you seem like a risky investment.

    Purchase a copy of your business credit reports and scores to see if your business credit score needs to be improved.

    If you do not have business credit history, your personal credit can be used to analyze your creditworthiness but leads to greater personal risk. It is best to build business credit for your real estate investment business so you never have to miss an opportunity again.

    If you have any questions, reach out to the credit experts at North Shore Advisory for a free consultation.

  2. Insufficient documentationGetting a mortgage for an investment property requires a strong financial paper trail. Investment companies should be careful to document all their income and assets. You may need to provide both personal and business tax documents and bank statements. The income of the individual/business that is making the application must qualify for the loan payment. If the income/profits are too low the commercial real estate loan application will likely be rejected.
  3. High debt-to-income ratio

    Some real estate investors, especially younger companies, have difficulty getting a mortgage on a secondary property if they already hold a personal mortgage or have high debt. A commercial real estate company may get denied if their debt-to-income ratio is too high.

  4. Not enough assets

    Since government loans – such as FHA, VA, and USDA – may not be an option for real estate investments, a conventional loan is often needed. Conventional mortgages require the borrower puts at least 20% down.

    The lender will also look at your assets to see if you have enough to cover the mortgage payment for three to six months. If you don’t, the commercial real estate loan may be denied. Lenders want to make sure that your business has enough liquid assets that if a tenant moves out you can cover the mortgage while looking for a new one.

There are so many financing options available to real estate investment companies. In order to be successful in the property investment world, you need to have an understanding of all of them and their requirements. One thing is true about all affordable investment loans – they require strong business credit profiles, as well as a strong personal credit history.

At North Shore Advisory we recommend reviewing each personal and business bureau report on an annual basis. Call for more information and a free consultation.


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