Residential Loans
Loan Fee: 2.95-3.95% (Minimum Fees do apply)
Processing Fee: $250.00
Loan Doc Prep: $995.00
Interest Rates: Very Competitive
Loan to Value: 60-65%
Overview:
The new Dodd-Frank regulations as implemented and overseen by the Consumer Financial Protection Bureau (CFPB) go into effect 1-10-2014. They affect primarily “High Cost Mortgages”, which is the category that most Private Loans fall under. The changes will come as quite a shock to those that are unaware of them, and they are going to make Residential Private Lending more difficult. That being said, Private Lending will still be a viable option for many and in a lot of circumstances the only option. Some of those changes include:
1. No more balloon financing, all loans must be fully amortized.
2. “Ability to Repay” must be documented and verified.
3. “Prepayment Penalties will be illegal.
4. The borrowers, regardless of homeownership experience MUST obtain
Pre-Loan Counseling from a certified HUD Counselor.
5. It is now illegal to include closing costs in the loan. They must be paid for separately.
6. Appraisals are now required by federal law.
As you can see these changes will make getting financing more challenging, but we have known these changes are coming for quite a while and have plans in place to help. The biggest challenge is finding private individuals who are willing to make long term financing! That means that any borrower who uses Private Lending will need to be able to refinance into conventional loans within 3-5 years. That is the reason these loans adjust to 12% after 5 years. The lenders want the borrower to make every effort to refinance prior to the end of the first 5 years.
That being said, current conventional lending guidelines have become so strict, getting a conventional loan almost feels like climbing through the eye of a needle! Gone the way of the dinosaur are Alt-A and Subprime programs. That leaves only private lending as choice for many to be used as a short term tool.
Private Lending is a GREAT tool for unusual properties, alternative cash flow situations, credit challenges, or if a loan just needs to be done in a hurry! I am seeing quite a few large down payment purchases and low LTV refinances that just can’t be done right now with the tight underwriting criteria.
There are a few things to consider before getting a Private Lender loan. First, you need to have tried all of the conventional options. Private Lending is a powerful tool that can help many accomplish their goals. It is however it can be an expensive option. With few exceptions, the interest rates start around 9%. I am often asked why the rate is so high. Well, we have to compete with other investments to have access to the Private Lenders funds. If the rate gets too low, they will buy bonds or other investments with less perceived risk.
The loan fees are higher than conventional loans. Our loan fee on Residential Real Estate is 2.95-3.95%. Why are the fees a little higher? It is mostly the time involved. If a loan officer does a conventional loan, when that loan closes, they are typically done with the transaction. With a private loan however, we are involved for the entire term of the loan, answering questions and problem solving.
You must have equity. Private Lenders have lost a lot of money in the past few years, as have all of us. Therefore safety of principal is their first consideration. You will be hard pressed to find a Private Lender who will loan more than 60-65% of the property’s value.
One of the new challenges with Residential Private Lending is the borrower will now need to be fully qualified for the loan. This will include a check of income, credit and assets. Income to debt ratios will have to analyzed. No longer will it be legal under federal law to make a residential mortgage loan strictly on equity.
Although Private Lending is less regulated than conventional lending, you will still be expected to show a lot of information to a potential lender. Be prepared to show the following:
1. 2 years tax returns for both personal and business (if applicable).
2. W-2’s and current paystubs (if applicable).
3. A current financial statement, both personal and business.
4. A YTD profit and loss statement.
5. A YTD income statement.
6. Credit Report.
7. Business and personal bank statements.
8. Copies of all lease agreements on the subject property.
A lender is also going to want to see a preliminary title report and a history of the property taxes, zoning and permits. An appraisal, including schedule of rents if applicable will also be required.
For a frank and confidential conversation to determine if private lending and working with us is right for you, please contact us!
Commercial Property Loans
Loan Fee: 3.95-6%
Processing Fee: $250.00
Loan Doc Prep: $995.00
Interest Rates: Very Competitive
Loan to Value: 60-65%
Overview:
There are several differences between Commercial Private Money loans and Residential Private Money loans. First and foremost, Commercial loans are not regulated, and thus not subject to most of the state and federal regulations. That makes them easier to get done…..but on the other hand, private lenders tend to be less enthusiastic about loaning on commercial property. There is a perception that they are riskier loan and that drives the rate up a bit.
Certain types of commercial property are easier to get a hard money lender interested in. The difficult ones however are: Single use buildings, i.e., restaurants, medical buildings, gas stations, etc., and for obvious reasons, they can be leased or sold to a smaller group of users.
Although commercial lending is less regulated, you will still be expected to show a lot of information to a potential lender. Be prepared to show the following:
1. 2 years tax returns for both personal and business (if applicable).
2. W-2’s and current paystubs (if applicable).
3. A current financial statement, both personal and business.
4. A YTD profit and loss statement.
5. A YTD income statement.
6. Credit Report.
7. Business and personal bank statements.
8. Copies of all lease agreements on the subject property.
A lender is also going to want to see a preliminary title report and a history of the property taxes, zoning and permits. Depending on the type of property, they might also require an environmental impact study and or an environment hazard report.
In years past, appraisals were not necessarily required for a hard money commercial loan. In current times, however, the county assessed value of properties is not necessarily trusted by lenders, so unless you have massive equity, you best be prepared for the expense of a commercial appraisal.
Experienced commercial owners will see this and say, shoot, this is the same things that a bank would require! I thought this type of borrowing would be easier. Well my friends, in the current world, as you know, there is no such thing as easy! If your client has all of this info and the bank will give them a loan, they should run, not walk, to the bank and sign papers! The problem is, very few banks are making many loans at the moment, and very few people can meet bank qualifications. Private lending is still easier to qualify for and if they need money, it might be the only option!
For a frank and confidential conversation to determine if private lending and working with us is right for you, please contact us!
Bare Land Loans
Loan Fee: 3-5% (Minimum Fees do apply)
Processing Fee: $250.00
Loan Doc Prep: $995.00
Interest Rates: Very Competitive
Loan to Value: 60-65%
Overview:
Bare land private money loans are an interesting item. Some private lenders hate bare land because if they have to take it back there is no possibility of getting rental income. But there are some private lenders who like bare land loans, because there is no maintenance or rental headaches if they have to take the property back.
Either way, bare land has a more limited resale market than improved residential property. This is the reason that few, if any commercial banks will lend on bare land at the current time.
If you find a client looking for a loan on bare land, then private/hard money is one of the few options available. Loan to value guidelines for private investors are stricter on bare land, so rarely will you find someone will to exceed 65% of value. As with anything that has to do with private/hard money lending, nothing is written in stone, unless of course it is written by the government. Typically however, bare land loans are exempt from government regulation with the exception of usury laws.
As with other types of private/hard money loans, nothing is as easy as it used to be. In the old days, (that would be a couple of years ago), income and credit mattered very little to private/hard money lenders in Oregon.
To build your case for a private/hard money bared land loan, be prepared to show the following:
1. 2 years tax returns for both personal and business (if applicable).
2. W-2’s and current paystubs (if applicable).
3. A current financial statement, both personal and business.
4. A YTD profit and loss statement.
5. A YTD income statement.
6. Credit Report.
7. Business and personal bank statements.
A lender is also going to want to see a preliminary title report and a history of the property taxes, zoning and permits.
Unless the transaction is a purchase with a 40-50 percent cash down payment, the client should also be prepared to pay for an appraisal!
For a frank and confidential conversation to determine if private lending and working with us is right for you, please contact us!
Rehab/Flip Loans
Loan Fee: 3% (Minimum Fees do apply)
Processing Fee: $250.00
Loan Doc Prep: $995.00
Interest Rates: Very Competitive
Loan to Value: Not Greater Than 65% (based off of finished appraised project value. The builder must have some of his own funds/equity in the project.)
Overview:
Rehab loans to flip properties are very popular at the moment. They can also be difficult to obtain, because of the risk that investors feel there is in properly completing the project. Most successful “Rehabbers” either use their own funds, or have a money partner
There are many builders and “rehabbers” who are taking advantage of the rash of foreclosure and bank owned properties. They are purchasing them, “Rehabbing” them, and putting the property back on the market for a quick turn and profit. There is nothing wrong with this. Certain properties that are foreclosed on are in poor shape. Getting these back to “market” condition is doing the community a service, and if someone can make a profit in doing so, then GO USA!
It takes money to rehab properties. They must be purchased, materials obtained, labor paid for and often times permits are required. The properties are valued based on finished value. An appraisal is performed, using the existing property, along with plans and specifications for the improvements. Because there is a spread between hard cost and finished value, some borrowers feel they should be able to borrower the entire amount needed as the investor will be protected with the spread of value mentioned above.
In times past, it often happened that way. Today, however, most investors are going to want to see the borrowers with “skin in the game”. The investors want to know that if the project does not work out as planned, their loan is still protected because the borrowers need to expect to put 40% or so of the hard cost into the project in cash or other collateral.
There are special considerations that arise with Rehab/Flip Loans, as with all types of construction loans. DO NOT expect the investor is going to hand you a check and trust that the monies will be spent as planned. Project management is a big issue. Some title companies used to have construction escrow services. These services would escrow the funds, inspect the invoices presented and inspect the project to insure that the work was actually completed as stated.
At the present time construction escrow companies are hard to find. The risk was simply too great for them, and the business was not profitable. Most investors do not want to take the time to manage the projects themselves, so this becomes a big hurdle!
All this being said, expect to pay a higher interest rate on rehab loans. Unless you get a loan from a family member, the interest rate will probably be just breaking the double digits. The client MUST make sure you add the cost of interest and loan fees to your project, with a reasonable holding time, and then calculate your profit. Those costs sometimes will simply make the project NOT pencil.
If a client still wants to try this be prepared to present the following information at minimum.
2 years tax returns for both personal and business (if applicable).
W-2’s and current pay stubs (if applicable).
A current financial statement, both personal and business.
A YTD profit and loss statement.
A YTD income statement.
Credit Report.
Business and personal bank statements.
Earnest money agreement.
Building plans (if applicable)
Cost Breakdown
Building Materials Specification Details.
A lender is also going to want to see a preliminary title report and a history of the property taxes, zoning and permits. You will also need to pay for an appraisal, showing the finished value of your project.
If after all of this the client still wants to consider a rehab/flip loan, and they have the cash and experience to pull it off, then we will try our hardest to help them!