When lenders review a loan file—whether it’s DSCR, fix-and-flip, bridge, or private money—they’re not looking for perfection. They’re looking for risk. And risk always shows up through red flags. Unfortunately, most borrowers don’t recognize these red flags until their loan is already delayed or declined.
The first major red flag is inconsistent documentation. Missing bank pages, names that don’t match, unclear lease structures, or partial statements create immediate concern for underwriters. Lenders need full clarity on cash flow and borrower identity. Any gaps slow the file.
The second red flag is an unrealistic rehab budget. Underwriters evaluate thousands of renovation budgets every year. When numbers are outdated or too low for the renovation level required, lenders assume the borrower hasn’t properly evaluated the scope of work. An underpriced budget means the project may run out of funds—creating risk of default.
The third red flag is a weak ARV. ARVs must be supported by comparable sales with similar beds, baths, square footage, and renovation quality. When comps are mismatched or inflated, the lender views the loan as structurally unsound. A strong ARV is the backbone of most investment loans.
Liquidity concerns also trigger red flags. Lenders want to see stable, seasoned funds. Large deposits appearing suddenly—without explanation—raise concerns about the source of capital. Likewise, borrowers who barely meet the minimum liquidity requirement are viewed as higher risk.
Another red flag occurs when the appraisal reveals issues absent from the borrower’s rehab plan. This includes foundation problems, water intrusion, mold, or outdated mechanicals. When these items aren’t included in the budget, the lender knows the project will require more money than planned.
Finally, a borrower who cannot articulate their numbers—purchase price, budget, ARV, holding costs, and exit plan—reduces lender confidence. Competent borrowers get approved faster because lenders trust their execution ability.
Understanding and eliminating these red flags before submitting a file dramatically increases approval speed and strengthens your overall lending profile.
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Email: annie@insightflending.com
