Residential Loans

Loan Fee: 2.95-3.95% (Minimum Fees do apply)
Processing Fee: $250.00
Legal Doc Prep: $995.00
Interest Rates:  Very Competitive
Loan to Value:  65%

Overview:

The Dodd-Frank regulations as implemented and overseen by the Consumer Financial Protection Bureau (CFPB) went 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 Owner-Occupied 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 certain 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 were coming for quite a while and had plans in place to help.  The biggest challenge is finding private individuals who are willing to make long term loans!  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.

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 a more 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 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 be 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!