By now you probably have heard that interest rates have risen to a 20-year high, but how exactly is this affecting Real Estate sales and prices? The Federal Reserve (the Fed) raises interest rates to slow demand for goods and services as with higher interest rates things cost more over time. The Federal Reserve does not directly affect mortgage rates as the rates the Fed control are only the rates that banks borrow from the Fed. This makes the cost of money to banks cost more so Banks raise their rates to the consumer to cover the increased costs to them. Since consumers get loans from Banks to buy cars, homes, consumer goods, and services the costs for all of it go up. In the mortgage arena, we have seen rates go from the low 3’s in January of 2022 to the low 7’s currently.
It should be obvious that a consumer will be able to buy less of a home in a high-interest rate environment, but home buyers don’t really understand how much it actually affects their buying power. An example would be a couple who has been making an income of $100,000 combined with a normal debt load of a car payment of $500 a month and student loans of $250 a month. This couple could afford a house with a 3% mortgage rate and 5% down at $561,000 sale price. At a 7% interest rate the same couple can now only afford a house priced at $356,000. This a $205,000 difference that has occurred in less than a year. This will hold true when qualifying for auto payments, business loans, and all loans to buy goods and services.
So with the diminished buying power of potential home buyers, you would think that Real Estate values will go down to accommodate the higher interest rates. You would be right in your assumption. This holds especially true in the higher priced homes where the people that were qualifying for a million-dollar mortgage can now only qualify for a $700,000 mortgage. Home sellers are having to come to grips with the fact that their home is not sellable at the same price it would have been a year ago. With older folks looking to retire in the next 5-10 years they are seeing the value of their Real Estate portfolio go down, and this may hold off their plans for retirement and holding on to their long-term jobs not making room for younger folks to fill the gap. Furthermore, the older generation has seen this before so they will be extra cautious with their money going into retirement and possibly not selling their family home to downsize for retirement as they may have originally planned.
The higher interest rates are pushing Real Estate values lower and this is making investors worried to the point they are holding back investing in Real Estate taking out a whole segment of Real Estate Buyers. As prices decrease you will be seeing appraisals come in lower-than-expected making selling a house more challenging when the sale depends on an appraisal. Those particular sales may fall through if sellers are not willing to lower their prices and eventually, if they need to sell, they will have to sell at a lower price. If interest rates continue to go up, and it is looking like this will be the trend, prices will have to continue to go down to accommodate those that can no longer afford to buy in the same price range as the lower interest rates would have allowed them to. The higher rates thin out the potential pool of home buyers as their buying power has diminished and those folks looking to move up by selling their existing home and buying a bigger one have dried up as well.
From a lending aspect, as rates rise, lenders know that the home values will be decreasing so the appraisal is going to be a much more important part of the transaction. FNMA and FHLMC will be cracking down in different markets where they know the prices are softening faster than other parts of the country, typically in higher-cost areas like California. Since MAE Capital Mortgage also does Private Money lending, we are seeing private individual investors who actually lend their own money to others, tighten up their requirements as well. This means less available funding for fix and flip programs, After Repair Value (ARV) programs, investor buy and hold programs, commercial funding, and more. Talking about commercial funding where that market has been killed essentially by COVID and Amazon coming in to fill the gap, has gotten even worse. As investors see the rates go up, they are less likely to buy or lend their money for Real Estate of any kind.
To conclude, higher interest rates make it more difficult for home buyers to buy homes that fit their needs. High-interest rates make home values have to come down to be able to sell their homes. Higher interest rates make the desire to invest in Real Estate and Real Estate Notes and Deeds a whole lot less. Higher interest rates make commercial lending even worse and make commercial values continue to decline. So, all in all. higher interest rates are not good for Real Estate values, resales, investments, and rehabilitation of real estate. If you are a potential buyer of Real Estate, you need to make sure your offer is a bit lower than the current market supports as prices will continue to fall as rates rise. If you are a potential seller of Real Estate, do it now before rates go even higher and be flexible in looking at lower offers, if you are not flexible you will not be able to sell your property in this crazy Real Estate market. On the bright side if you are well qualified first-time home buyer it should not matter to you what rates are so long as you can afford the payment associated with the house you want to buy. As a first-time homebuyer, you now have more inventory to choose from and if you buy now and interest rates continue to go up you have a low mortgage and an affordable payment, when interest rates go down in the future you can always refinance to the lower rate. So don't be afraid of rising interest rates as there is no perfect time to buy real estate but what I have seen over the long run owning is far better than renting so do it now and join the club of home ownership and let MAE Capital help you with buying your home and financing it as when you bundle with us you get perks like money for closing costs and an easier experience.
This subject is a little uncomfortable for most people. When the Bank tells you that you don’t qualify for the loan you have applied for it can be very frustrating. If the Bank tells you No not only do you feel defeated you are also left feeling embarrassed. So, what do you do; do you just stop trying, or quit? Or do you move on to alternate plans or search for different options from different sources? We are going to cover the latter and what you can do to be proactive in obtaining financing for a home or an Investment property.
First, we need to determine why you were declined by the bank. Was it due to bad credit or credit that didn’t meet this lender’s standards? Was it due to the fact you did not have enough money to put down? Was it because you could not show enough income, on paper, to qualify? Or a combination of all of these? These are common issues when trying to qualify for a loan, but they can be overcome in most instances. In order to fix the problem, we have to first identify it and that is usually done by analyzing your financial paperwork such as your credit report, pay-stubs, bank statements, and Tax Returns to determine where the problem lies. Then we put together a plan to fix the problems.
Let’s start with the Credit and if you were declined due to poor credit. If you have applied for a home loan and the lender has declined you for poor credit we must look at what that lender’s credit score requirement is. If the lender will not approve loans for people with credit scores less than 640 or 620, 600 or lower then we have to see exactly what you credit score is and that lender should be able to provide you with the credit report that they ordered. The reason this is important is that a lender’s credit report is different than the free stuff you can get online like Credit Karma or a service like this, not to me3ntion if too many people pull your credit it could hurt it even further. A lender’s credit report takes into consideration the 3 major credit reporting bureaus and merges the data into one report that has all 3 credit scores. A lender will look at your middle score or if you are married, they will look at the low-mid score of the two people. It is important to know that there are many ways to view a credit report and how to present it to an underwriter, who will make the decision on your loan. If you are the bread winner in the family and your spouse has the poor score that is dragging you down, you might try applying as sole and separate and adding your spouse to the title after the loan closes. Or you could look to the reasons for the bad credit and see how hard it would be to fix it and how long it would take to fix it and if the transaction you are in today could be stretched out long enough to get it fixed. If your scores are too low for the lender you are with there may be other lenders out there that will take the lower scores. At MAE Capital Mortgage we are a Broker so we have many lender’s we deal with, and we know what lenders will take the lower credit scores. We also show you how to fix your credit and tell you how long it will take. One option might be an FHA loan as many lenders we deal with will go down to a 580 or even as low as a 550 credit score. If you have a large down payment and poor credit, we have sources that can fund that with a little higher interest Rates. There are ways to help and we can surely show you the way.
If your lender has declined you for not enough money to buy a home, there are ways to overcome this as well. We would have to look at the home or property you are trying to purchase to determine what type of financing would fit the Real Estate you are trying to buy. If you are trying to buy a single-family home and you are going to occupy the property as your primary residence, we again might look to an FHA loan as you can get into a home with as little as 3.5% down. With an FHA loan you could also use a gift from a family member, or employer for that 3.5%. This option helps our clients in many situations that they didn’t believe they had enough money to buy a home. If you are looking to buy an investment property and you don’t have enough money for the down payment there are option for this as well. You could negotiate with the seller to carry a second mortgage and you could buy an investment with as little money as $0 down. This would be coupled with a non-traditional loan or a Private/Hard money loan, but it can be done. There are also down payment assistance programs that come in an out of the market that you may be able to qualify for as well for a single family owner occupied home. So, don’t always looks to the lack of money as the deterrent to purchasing a property.
Another common problem when trying to qualify for a loan is the lack of provable income. A lender may have declined you for a loan due to the fact that your “ratios” are too high. This is a lender’s way of telling you that you don’ make enough money to qualify for the loan products they offer. A ratio is the mortgage payment with taxes and insurance and your monthly bills added together then divided by your income that you show on your tax returns, pay-stubs, bank statements or a combination of all. Most traditional financing will require you provide Pay-stubs and your Federal Tax Returns to determine your income. This doesn’t always work for people as income can be subjective especially if you are self-employed. People try hard not to owe the Government taxes at the end of the year and for folks that are self-employed can, and do, show more deductions for the expenses of running a company or their personal business’. This is well known in the industry, but many lenders don’t have any other options for those folks that write off too much on their Tax Returns. At MAE Capital we have several options for those that can’t qualify for a traditional loan with Tax Returns. The most popular is the Bank Statement Loan that uses the deposits made by the borrower each month to determine what they actually make. By averaging the deposits over the last 2 years we can see if a borrower is making enough money to actually qualify. Another type of loan that will not require Tax Returns is the W2 only loan. This loan will use your pay-stubs and your W2s but will not use your Federal Tax Returns. The W2 only loan will help those that make a W2 wage but may write off too much on their Taxes to qualify for what they want. At MAE Capital Mortgage we offer both of these loans from a variety of lenders across the country.
If you are an Investor and the Banks have turned you down or they just take too long, we have great options for you. Our sources of Private Money Loans or Hard Money Loans are second to none. Private money loans allow borrowers with 20% or more down to qualify without providing proof of income. Private Money Loans for Investors will also allow for poor credit. If you are an investor and the Banks have said no look no further, we can help. Learn more on our Private Money page.
You may have a combination of the above issues and there are ways to deal with your problems. If you simply can’t show anything and have bad credit and no money, then it may not be the time for you to purchase. This is not the end; however, you may simply need a plan to work towards. We work with folks every day to plan for their future. Getting into a home or buying a piece of property takes planning and guidance and that is our function. The American dream should not be closed to those that do things a little different or don’t work inside the “the box”. We are here to work you through the maze of financial options. At MAE Capital Real Estate and Loan we have the ability to work with all types of borrowers and home buyers and Investor’s. Call us today to get qualified 916-672-6130.
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.
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.
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.
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.
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.
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.