Blog with MAE Capital

Private Money Lending is just like it sounds, money that comes from private sources.  Private sources are individuals, retirement accounts, hedge funds, basically any source other than regulated funds from a bank or loans sold to Fannie Mae, or Freddie Mac, or FHA, or VA.   These funds are made available for business purposes which are loans for a property that is something other than a borrower’s primary residence or personal use.  Another name for this type of lending is “Hard Money” which references to the fact that is someone’s “Hard cold cash” they choose to lend instead of letting the bank lend it.  Private/Hard Money Loans have been a staple source of money for decades, it is expensive money and it is short term, but it can help people out of bad situations and or help rehabilitate properties.

Private Money borrowers have generally come to the conclusion that they do not qualify for traditional bank financing where they are required to have excellent credit and be able to prove their ability to repay the loan through their tax returns.  A private money borrower may also simply enjoy the convenience of not having to go through all the troubles and the time it takes to get a loan done through a bank.  The property that a borrower needs funds on may not traditionally fit what a bank is looking for either, such as a fixer, or a mix-use property.  There are many reason a borrower chooses to utilize private funds to fund their transactions.

The type of properties that can be financed with Private Money is endless.  At MAE Capital Mortgage Inc. we have made loans on a RV Park, Vacant Commercial Buildings, Raw Land, Land and Construction, Mix-Use property, Total fixer uppers, Apartment buildings, Churches, warehouses buildings used for legal cannabis production, one loan to encompassing multiple properties and list goes on.  The possibilities are endless, however, it has to make sense to the investor who will be lending the money.  The only real way to make the loan make sense to an investor is to have a good equity position.   The equity position is a fancy way of saying that if you’re a buying a property with Private Funds the investor will want a large down payment and the larger the amount down the less risk to the investor and the better the terms will be for the borrower.  The simple reason for a large equity position is that if the investor has to take the property back they will be able to re-sell it and get their money back and hopefully some profit for their trouble.  The down payments required will generally start at 20% down for the single-family investment property where the borrower generally has decent credit.  Investors will require more down as the risk levels go up, such as, if a borrower has poor credit, or no verifiable source of repaying the loan back, if the property they want to finance would be difficult to re-sell like raw land.  Each transaction is different and there is no way to be able to tell what the risks are until we have seen the property and talked with the borrower about their financial situation. 

The Borrower will be required to complete an application and have their credit run as minimum requirement.  Although the loan will be based primarily on the equity in the property, the borrower will judged based on their past credit history to determine the loan to value the investor will feel comfortable lending to them.   Private Funding does not have requirements like traditional loans do with regards to how long a borrower must be out of Bankruptcy or Foreclosure.  The only real requirement is that a potential borrower generally cannot be in the middle of a bankruptcy and get a loan.  The reason for that is simple, an investor doesn’t want the potential of losing their money if the courts decide to give the property away in lieu of a debt or forgive his note altogether.  As far as a wait time they will only require that the bankruptcy be completed and released by the courts.  A foreclosure doesn’t matter to an investor so long as it is not on the subject property (already transferred from borrower’ name). However, Private money can be used to cure an existing foreclosure, so the borrower can remove a property from foreclosure prior to transfer.   So, Credit Score doesn’t matter either when applying for a Private money loan.

Equity position seems to be a recurring theme here and it is.  The more equity a property has, either from down payment on a purchase, or the difference between the property value and the loan amount being requested on a refinance, the better the transaction appears.   The way we determine an equity position is by an appraisal, in most cases.  In some cases we have ways of determining value on a property without going through the expense and time of a formal appraisal.  Either way a valuation of the property must be done and shown to a potential investor prior to them funding the transaction.  On a purchase transaction this is easier to ascertain by simply looking at the purchase price and the amount of down payment the borrower is putting into the property in relation to the sale price.  On a refinance we can generally pull comparable sales and determine a value based on other similar sales in the area.  If we are doing a unique property, such as a commercial building, Land, or some other property where it is difficult to find comparable sales we will defer to a licensed appraiser’s opinion of value.  So to say that no appraisal is required, is simply not true.  Although, a formal appraisal may not be required on every transaction some professional opinion of value will be required to be supplied to an investor on every transaction as the property is the security and the investor will want to be protected. 

All Private Money transactions will require a title search and title insurance.  This requirement is to protect the investor and insure that the investors is in first lien position.  This means that the title insurance will insure that if the loan goes to default that the investor would be the first one paid off upon sale.  This is extremely important if the property has been damaged or requires completion in order to sell, as the large equity position required may have become eroded and other investors may have liens against the property.   Title insurance also insures the boundaries of the property instead of having to have a survey done.  The lending investor will also require that there is hazard insurance in place prior to funding the transaction.  The hazard insurance policy insures the borrower and the investor that if the property burns down it will be replaced with an equal or like structure, thus keeping their investment secure.  Although, this is a requirement of all loans being placed on real property it is extremely important for Private Money transactions where the borrower may be fixing up the property, or renting it out or both, these insurance policies provide insurance for both the borrower and the investor. 

Those are the general requirements of a Private Money Loan.  At MAE Capital Mortgage Inc. we will simply require a borrower to get started by providing us with an application, a borrower’s Authorization to check credit, and an address of the property, or a purchase contract if they are buying the property.  We take care of all the details like opening Escrow/Title company and gathering the information the investor needs.  We also will order the appraisal (if needed) and set up the title searches for our borrowers and investors.  As far as where the money is coming from, well, that is our “Secret Sauce”.  We have complied many sources of funding, some we will fund ourselves, and some we arrange on behalf of an individuals, and some we arrange through other Brokers who we work closely with that have the investor for the type of transaction we are looking to fund.  This process requires a California Bureau of Real Estate Broker License which MAE Capital Mortgage Inc. has (#01913783).    These types of loans are not for everyone, but knowing they are available, if you should need the money, is a great resource to have.  We here at MAE Capital take great care to make sure our borrowers as well as our investors are well informed of the fees and risks upfront.  We do look forward to working with you for your Private Money needs.  Please Call us today for more information or to start the process at 916-672-6130 we are here to help.

 

Posted by Gregg Mower on June 12th, 2018 11:43 AM

Welcome to 2018.  I think it is a good time to review all the available loan types in today’s lending world and what they are uses for.   Although there has been changes in the industry There are still options for people to get financing for both their primary homes and their investment property.  There are creative options for those that are self-employed that don’t show all their income on their tax returns.  Of course, we have the basic home loans like FHA, VA and Conventional loans that are still priced really good for an economy that is starting to build steam.  On the end of the spectrum we have Hard MoneyLoans available for those investment properties that banks may have said no to for one reason or another.  All these loans have their purpose in today Real Estate Markets.

Let’s start a look at the most basic of loans that are used for purchasing and refinancing primary residences.  These loans are, what we in the industry call, “A” paper loans.  These loans also fall under, what the government calls, Qualified Mortgages or QM loans.  These loans are full of regulations designed to protect the consumer from lenders that may not have their best interest in mind.  One of these loan types is the Convectional loan and is the most widely used type of mortgage.  The Conventional Home loan will allow buyers to purchase home and put as little a 5% down.  A Conventional home loan is privately insured which means if you put less than 20% down you will be required to purchase mortgage insurance from a private institution.   The same would hold true for a refinance, you would need greater that a 20% equity position in order to refinance a Conventional loan without Private Mortgage Insurance (PMI).   Because the insurance is private the underwriting guidelines are a little tighter than that of the Government insured loans like FHA.   Traditionally FHA insured loans have had the full faith of the Federal Government backing these loans making them more desirable for banks to sell the loans to each other.  Thus, interest rates on these loans are little lower than their Conventional counterparts and the underwriting criteria for FHA loans are little easier as well.  So, if you have a lower FICO score (550-660) FHA will probably be your best bet as there are not additions to the interest rate with lower credit scores with the FHA loans.  FHA does come with mortgage insurance, however, with the higher Loans to Value loans it still is a lower payment than a conventional loan.   Both FHA and Conventional loans now do not require a termite report and clearance unless it is asked for in the Real Estate Contract making both loans flexible for home buyers in a tight Real estate market or if buyers are willing to buy light fixers.  The Veterans Administration loans or VA loans are only for those that have served in the military and have the eligibility required (usually 4 years in) to qualify.  The benefits of being able to use a VA loan are great, besides the fact that the Veteran does not have to put any money down at all it is fairly easy to qualify for the payment as interest rates are low for these loans, as well.  VA loans will take Veterans with credit scores as low a 550 with no money down and no mortgage insurance.  These are all considered Qualified Mortgages in the Government’s eyes and will require certain waiting periods to ensure borrowers have the ability to shop and compare and make sure the loan being offered them is good for their situation. 

Another option for home buyers under the Primary Residence type of loan is the Bank Statement qualifying loan.  These types of loans are still considered Conventional loans as they are privately underwritten.  They are specifically designed to provide an alternative way of qualifying as opposed to the traditional way of having to provide Federal Tax Returns.  These loans will require a borrower to provide 12-24 months of bank statements from their personal or business accounts or both.  They will be qualified by averaging their deposits and taking out a certain expense number and that will be the income that will be used to qualify them.  As it still falls under QM loans these loans are required to make sure the borrower has the means to make their mortgage payment that they are applying for.  Due to the fact that Private Mortgage insurance companies will only underwrite under traditional income qualifying guidelines these loans will require a 20% or more down payment.  As they are considered “higher risk” loans and interest rates are bit higher than Traditional Conventional loans and FHA loans. 

Lastly, we need to cover a sector of the market that is almost considered “Underground Funding” and that is Private Money Loans or Hard Money loans as they have been called traditionally. Private Money loans are for those investors that don’t qualify for financing under traditional bank guidelines.  Hard Money loans are used primarily on investment property both Residential and Commercial properties.  These loans are arranged by mortgage brokers with private funds from private investors (individuals) and hedge funds.  The borrower is not scrutinized as much as the property is under this type of funding and the bigger the equity position is the better chances are that an investor will fund the project.  The minimal investment required to get a Private Money Loan or Hard Money loan is 30% of the project’s value or purchase price. whichever is less.  These loans can be used to purchase Residential, Commercial, Industrial, Mixed-Use, Land, Construction projects, Churches and those properties that Banks tend to shy away from.  Hard Money loans can be used to refinance an existing project, or provide funds for construction.  

There are many different types of loans available today and can be used for many purposes.  Here at MAE Capital Mortgage we have all these loans available.  Not only do we have these loans available we have experts in guiding you to the right loan product.  As we are a Mortgage Broker we are also limited by the government on the amount we can charge for certain products thus making our loan interest rates and fees the best in the market.  We work with direct lenders and get what is called a wholesale interest rate which is lower than a retail interest rate you would get from a Banker or direct lender and we pass those saving on to you.  We know you have options out there and I would advise that you work with a team like MAE Capital Mortgage that has decades of experience that will be passed on to you in the form of knowledge and  reduced costs and fees.  Please call our offices is you have any questions regarding these loans or Real Estate we welcome the opportunity to help you with this process.    MAE Capital Mortgage 916-672-6130 or www.maecapital.com. 

Posted by Gregg Mower on January 8th, 2018 12:55 PM

You may or may not have heard of the term “Hard Money Loans or Private Money Loans” before simply because you may never had a need for one.  But what exactly are these loans and what are they used for?  Well simply put they are used primarily to buy or refinance investment property and the loan comes from a private party or a group of private individuals.  It might sound complicated but as you will soon find out is actually pretty easy.  So why would someone lend a large sum of money to someone they don’t even know?  The answer lies in the Real Estate the loan is placed on, as Hard Money lenders will require a large equity position before they lend.  So why would I take a loan out with such a high interest rate and fees in a market where interest rates have never been lower?  This answer lies in the lack of documentation that is reuqired and the speed at which it can be done. 

So we have asked some very important questions about Hard Money loans.    We asked what Hard Money Loans are used for, and we know they are used to purchase or refinance investment property and are provided by private parties.  With the new laws within the Real Estate Settlement and Procedures Act or RESPA it has become illegal to lend money on a primary residence without fully income qualifying for the loan, but the same does not hold true for investment properties..  The loans on owner occupied properties must also follow strict disclosure guidelines and timeframes where this does not apply either to invesment properties.  Hard Money Lenders are private individuals that see a benefit in lending their money at higher interest rates than the banks can offer in their savings accounts.   So investors in Hard Money Notes do not wish to take on the new liability that comes with the Dodd-Frank lending laws and regulations, that come with owner occupied investments, so they will only lend on those properties that fall outside of these laws and will lend on investment propertyies only. 

 As we have already said, we are in an environment where interest rates are at historic lows and that goes the same with saving accounts, so those folks that have a high net worth would rather act as their own bank and lend their money out at high interest rates then letting bank lend their money out at low interest rates.  The Hard Money Lenders are also limited on what they can do on their own without the use of a Mortgage Broker to arrange the loans for them, and that is where MAE Capital Mortgage comes in.  Our job as a Mortgage Broker, dealing with Hard Money loans is to put the borrower and the lender together with terms that are appealing to both the borrower and the lender.  The people that need money to fix and flip homes will use Hard Money as it is quick and they don’t have to go through the banks strict qualifying procedures.  Our Hard Money lenders will look at the equity position in the property first before they will lend money, as a bank will look at that and thier income and credit as well.  Generally, Hard Money lenders will require a minimum of an 75% LTV but most of the time will require a 50%  to a 70% nequity  position, depending on the type of property they are asked to lend on.  The higher the risk the property poses to the lender, the more equity a borrower will be required to have to get a Hard Money loan.  An example would be land verse a single family home.  Land is far tougher to sell if there were to be a default as opposed to a single family home, thus the equity required for a land loan will be higher than that would be required for a single family home.

The Property itself is the collateral for the loan so a Hard Money Lender will be more apt to lend money to a property that has a high equity position.  This is exactly why someone would lend to someone they don’t know.  As a Mortgage Broker it is our job to do the investigation on the property for the investors we represent, then it will be up the investor to decide whether or not they wish to lend on any particular property.  Some ways we can make it more enticing to an investor to lend their money out would be the return they can get on their money verse other investments.   The return is the interest rate for the lender.  The higher the interest rate that the lender can get the more apt they are to lend their money.   That is why interest rates are significantly higher for Hard Money loans than traditional financing.      So If you are looking to borrow money and you have less than perfect credit, a bankruptcy, foreclosure, or can’t verify your income, and want to buy an investment property and have a large down payment then a Hard Money loan might be exactly what you are looking for, but be prepared to pay for it. 

Again the risk drives the interest rates on Hard Money loans.  The higher the risk the higher the interest rate and fees.  On the other side of the Hard Money Loan is the investor.  As a Mortgage Broker we have to find those investor sources of funding for those folks that have all different kinds of needs and different prperty types.  It is our job to find sources of funding for 1-4 family homes, Construction, Commercial, Commercial, Raw land, Apartment loans, and loans that may blanket several properties, etc..  It is Our job here at MAE Capital Mortgage to know where to take potential borrowers and match them up to investors that would be interested in lending on these types of properties.  Again the property is what secures the loan in the unforeseen possibility there should be a foreclosure.  You see, if the borrower cannot make the payments, the lender will foreclose on the property that was put up for collateral.  When a lender has to foreclose there are costs associated with the process and that is why the equity in the property is so important for a Hard Money Lender.  In California, it will take 6 months to a year to foreclose so the time the property sits without any income being derived from it is also a cost to the lender, hence that risk factors we talked about earlier and the requirement for a high equity position.

As a potential borrower of Hard Money you should be prepared to show either a large down payment when purchasing a property or a large equity position when refinancing one.  Remember, these loans are not arranged on property that is primarily used as your primary residence, as Lenders do not wish to comply with the Government’s Dodd-Frank laws.  So investment property only for Hard Money Loans.  There has been a few times borrowers try to tell us, here at MAE Capital Mortgage, that they are not living in the property they wish to obtain a Hard Money Loan on when they actually live in it.  This is done as they don't qualify for a traditional loan for a owner occupied home for one reason or another.  This is actually Loan Fraud on the Borrower's behalf.  By signing to the effect that you do not live in a property and you actually do is considered loan fraud and you can be prosecuted for committing loan fraud, so don’t try this.  Private Money or Hard Money Loans have their purpose in Real Estate financing today as they keep the flow of investment and renovated properties moving through the market place as well as filling the gaps where banks won’t lend.

 For the owner occupied Alternative Income Qualifying programs click here and we might have program that can help owner occupants or poetential owner occupants..   We would love the opportunity to go over all your Hard Money needs.  Call us at 916-6782-6130 or if you have any further questions we have you can go directly to a Hard Money pages and use the online forms and information provided and upload your scenarios

 

Posted by Gregg Mower on August 4th, 2016 3:50 PM

Private Money Lending is just like it sounds, money that comes from private sources.  Private sources are individuals, retirement accounts, hedge funds, basically any source other than regulated funds from a bank or loans sold to Fannie Mae, or Freddie Mac, or FHA, or VA.   These funds are made available for non-qualified mortgage loans which are loans for a property that is something other than a borrower’s primary residence.  Another name for this type of lending is “Hard Money” which references to the fact that is someone’s “Hard cold cash” they choose to lend instead of letting the bank lend it. 

Private Money borrowers have generally come to the conclusion that they do not qualify for traditional bank financing where they are required to have excellent credit and be able to prove their ability to repay the loan through their tax returns.  A private money borrower may also simply enjoy the convenience of not having to go through all the troubles and the time it takes to get a loan done through a bank.  The property that a borrower needs funds on may not traditionally fit what a bank is looking for either, such as a fixer, or a mix-use property.  There are many reason a borrower chooses to utilize private funds to fund their transactions.

The type of property that can be financed with Private Money is endless.  At MAE Capital Mortgage Inc. we have made loans on a RV Park, Vacant Commercial Buildings, Raw Land, Land and Construction, Mix-Use property, Total fixer uppers, Apartment buildings, Churches, one loan to encompassing multiple properties and list goes on.  The possibilities are endless, however it has to make sense to the investor who will be lending the money.  The only real way to make the loan make sense to an investor is to have a good equity position.   The equity position is a fancy way of saying that if you’re a buying a property with Private Funds the investor will want a large down payment and the larger the amount down the less risk to the investor and the better the terms will be for the borrower.  The simple reason for a large equity position is that if the investor has to take the property back they will be able to re-sell it and get their money back and hopefully some profit for their trouble.  The down payments required will generally start at 20% down for the single family investment property where the borrower generally has good credit and a verifiable source of income.  Investors will require more down as the risk levels go up, such as, if a borrower has poor credit, or no verifiable source of repaying the loan back, if the property they want to finance would be difficult to re-sell like raw land.  Each transaction is different and there is no way to be able to tell what the risks are until we have seen the property and talked with the borrower about their financial situation. 

The Borrower will be required to complete an application and have their credit run as minimum requirement.  Although the loan will be based primarily on the equity in the property, the borrower will judged based on their past credit history to determine the loan to value the investor will feel comfortable lending to them.   Private Funding does not have requirements like traditional loans do with regards to how long a borrower must be out of Bankruptcy or Foreclosure.  The only real requirement is that a potential borrower generally cannot be in the middle of a bankruptcy and get a loan.  The reason for that is simple, an investor doesn't want the potential of losing their money if the courts decide to give the property away in lieu of a debt or forgive his note altogether.  As far as a wait time they will only require that the bankruptcy be completed and released by the courts.  A foreclosure doesn't matter to an investor so long as it is not on the subject property (already transferred from borrower’ name). However, Private money can be used to cure an existing foreclosure, so the borrower can remove a property from foreclosure prior to transfer.    

Equity position seems to be a recurring theme here and it is.  The more equity a property has, either from down payment on a purchase, or the difference between the value and the loan amount being requested on a refinance, the better the transaction appears.   The way we determine an equity position is by an appraisal, in most cases.  In some cases we have ways of determining value on a property without going through the expense of a formal appraisal.  Either way a valuation of the property must be done and shown to a potential investor prior to them funding the transaction.  On a purchase transaction this is easier to ascertain by simply looking at the purchase price and the amount of down payment the borrower is putting into the property in relation to the sale price.  On a refinance we can generally pull comparable sales and determine a value based on other similar sales in the area.  If we are doing a unique property, such as a commercial building, Land, or some other property where it is difficult to find comparable sales we will defer to a licensed appraiser’s opinion of value.  So to say that no appraisal is required, is simply not true.  Although, a formal appraisal may not be required on every transaction some professional opinion of value will be required to be supplied to an investor on every transaction. 

All Private Money transactions will require a title search and title insurance.  This requirement is to protect the investor and insure that the investors is in first lien position.  This means that the title insurance will insure that if the loan goes to default that the investor would be the first one paid off upon sale.  This is extremely important if the property has been damaged or requires completion in order to sell, as the large equity position required may have become eroded and other investors may have liens against the property.   Title insurance also insures the boundaries of the property instead of having to have a survey done.  The lending investor will also require that there is hazard insurance in place prior to funding the transaction.  The hazard insurance policy insures the borrower and the investor that if the property burns down it will be replaced with an equal or like structure, thus keeping their investment secure.  Although, this is a requirement of all loans being placed on real property it is extremely important for Private Money transactions where the borrower may be fixing up the property, or renting it out or both, these insurance policies provide insurance for both the borrower and the investor. 

Those are the general requirements of a Private Money Loan.  At MAE Capital Mortgage Inc. we will simply require a borrower, to get started, to provide us with and application, a borrower’s Authorization to check credit, and an address of the property, or a purchase contract if they are buying the property.  We will do the appraisal and set up the title searches for our borrowers and investors.  As far as where the money is coming from, well, that is our “Secret Sauce”.  We have complied many sources of funding, some we will fund ourselves, and some we arrange on behalf of an individuals, and some we arrange through other Brokers who we work closely with that have the investor for the type of transaction we are looking to fund.  This process requires a California Bureau of Real Estate Broker License which MAE Capital Mortgage Inc. has (#01913783).    Although, sometimes the fees may seem high as there may be several sources that needed to be used to close the transaction.  These types of loans are not for everyone, but knowing they are available, if you should need the money, is a great resource to have.  We here at MAE Capital take great care to make sure our borrowers as well as our investors are well informed of the fees and risks upfront.  We do look forward to working with you for your Private Money needs. 

 

Posted by Gregg Mower on April 10th, 2015 6:55 PM

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