Welcome to Hard Money Loans

It appears that the US Government just committed the US taxpayers to making the biggest sub-prime loan ever in lending AIG ~$80 billion for a near 80% stake in the insurance giant? Why? Because AIG owns a lot of sub-prime and Alt-A paper contributing to their cash shortage. This very well could amount to the largest sub-prime loan ever.

[tags]sub-prime, AIG, FED[/tags]

Well, you have to pretty much live in a cave to not have heard about the “credit crunch” that has been affecting the U.S. real estate and most financial markets. While residential real estate lending is what the mainstream media reports on most of the time, just about every segment of the lending world has been adversely affected by the over-extension of credit and “cockyness” of many Wall St. bankers and investment houses. The main issue today for hard money and other real estate lenders is trying to accurately determine an asset’s value today and in the next year or two. What many people seeking financing today do not understand is that the types of loans that have been made available in the residential and commercial real estate markets over the past 5 to 7 years created an artificial demand for housing and investment property. This in turn has pumped up the value at a rate never seen before. This artificial demand is now gone and it will take quite a bit of time (read: years) before things return to a level that makes sense. There was a time when people used replacement costs, the cost of renting something versus buying and other metrics to determine when it was right for them to buy. Those methods have not been employed for a while now and it is a shame.

I hope we will see some rational behavior make its way back into the financial system and not see the government tap the taxpayer checkbook to help bail them out of their inflationary monetary policy of the past 10 years.

[tags]hard money, loan, financing, credit crunch[/tags]

Well, it is not news that there is a lot of turmoil in many of the United States’ real estate markets today. There is also a lot of misinformation and unknown information with regards to many of the sub-prime, Alt A and A paper loans that were originated in the past few years. So, how is this affecting hard money lenders? If you own property in some of the states and counties that have been hardest hit it is likely that most hard money lenders will have increased requirements and may not be interested in lending on your property at all until the market settles out. Many residential markets in California, Florida, Nevada and Arizona are on special lists that data companies are providing to lenders and are being labeled as higher-risk markets due to their pricing volatility today.

Commercial and other income producing properties are still favored to residential properties as they are easier to value and understand from an underwriting perspective.

Effective immediately underwriting guidelines will be pulled back to the 60 to 65% neighborhood for residential properties (both owner occupied and non-owner occupied) and 65% to 70% for commercial properties (both owner-user and income producing). These numbers are rough estimates and may be better or worse depending on a number of different factors including property location, property condition, borrower strength and overall market performance.

Until further notice, we are going to be more restrictive with our residential (SFR) property underwriting guidelines. Maximum LTVs for single family homes will be in the ~65% range with exceptions made on a case-by-case basis…and rare. Property values are in a state of decline in just about every market right now and has forced us to be more selective with the deals that are selected. Commercial and income producing real estate maximum LTVs are still at 75%.

[tags]Underwriting, Hard Money Lending, Loans, Mortgages, SFR, Residential[/tags]

Just an update on the status of the current underwriting guidelines with regards to foreclosure bailout loans or loans where a NOD (Notice of Default) has been filed:

If there is a pay history problem and there has been an NOD filed, on residential OR commercial property, we will knock the maximum LTV we will be able to reach down to 65%. The borrower’s income will also need to be verified via tax returns and/or VOD/VOE, etc. There may also be other items that will be looked at with greater scrutiny.

[tags]Hard Money Lender, Guidelines, Bailout Loan, NOD[/tags]

I just read a great, but technical, article on Bloomberg.com regarding the current state of affairs in the world of Sub Prime lending. If you are following along the crazy ups and downs of the real estate world as of late you will find this article interesting. The bond markets have been volatile lately moving higher on fears that the Fed will get involved in monetary policy to combat inflation. We have also heard that existing home sales are much stronger than expected. But, keen investors will take note that aggressive incentives by home builders may be behind much of the sales increase as existing home sales fell by the largest margin since 1970 according to the Bloomberg article.

[tags]Sub Prime, Lending, Loans, Real Estate, Bonds[/tags]

Well, the lender closings continue this week with a number of banks closing up shop or halting fundings on loans that have already been approved. One that surprised me a bit was the Loan Center of California. I thought that they were primarily an A paper lender, but news this week from some colleagues indicated that they were not funding loans that had been approved and docs had been signed. That takes a really special operation to do things like that. Bottom line if you are currently seeking financing for a new purchase or a refinance loan with a “smaller” lender, you may want to double check and make sure that everything is on the up and up before you paint yourself into a corner.

[tags]Sub Prime, Loans, Finance[/tags]

Ok, let’s talk about 100% financing. Many people have become accustomed to 100% LTV loans (and higher) over the past few years. Unfortunately, many banks and lenders have been very irresponsible in how they lend money and we are starting to see the ill effects of these policies today. Banks are beginning to close up shop, lenders and investors who have purchased loan packages on the secondary market are going after lenders and mortgage brokers, and even Congress is holding hearings. What many people do not understand is that hard money lenders typically are MORE conservative when underwriting a loan. Why is this? Simple, private money lenders need to make sure that the collateral is good and that in the even they have to take a property back, they are secure and can sell the property in a timely manner. Most banks use a property valuation that estimates a 6 month to 1 year market time for selling a property, a private equity lender has to sell the property in 90 days or less typically.

How does all of this relate to 100% financing? Simple, 100% financing does not exist (to the best of our knowledge) in the hard money / private money world…at least not unless your parents are willing to loan you all of the money. While we do not know of anyone who will provide 100% hard money / private money financing here are a couple of very important items when you are out there looking for any kind of hard money purchase loan:

1. You need some “Skin in the Game” – You need to have a significant amount of cash going into the deal if this is a purchase transaction. Why? Simple, we need to know that you are not going to just walk away from the deal provided it really isn’t the deal of the century or you get in over your head. This is the most important item people looking for a purchase loan or ARV purchase loan.
2. Read #1 Again

This is not meant as a joke. This is something that 80% of the people that call us every day are looking for and can’t seem to wrap their heads around. Lenders need to see that borrowers are willing to back up claims that they have the deal of the century. The best way to do this is to show them that you/the borrower believes it is the deal of the centry by putting their own dollars into the deal as well. IF you are willing to do this put a good information package together on the deal, how much money you are looking for, how the funds will be used, and some information on the exit strategy. This will set you apart from the crowd and get the lender’s attention quickly.

[tags]Hard Money Loans, 100% Financing, 100% LTV Loans[/tags]

We get lots of calls each day from people looking for ARV or As Repaired Value rehab loans. For the record, there are a handful of people that like to do these deals out there. However, what most people seeking these loans don’t understand is that just because they are dealing with a private money lender / hard money lender that they get money just for asking for it. Most of the time the call goes like this:

Caller: Hi, I need a hard money loan for a property I am buying from the bank.

Us: We can help you with that. Can you tell me a little more about the deal, ie: purchase price, loan needed, rehab funds needed, etc.?

Caller: Well, I am buying it from the bank and it is worth $750,000, but I am able to buy it for $500,000. So, I need a loan for $500,000 to buy the property and then another $100,000 or so to rehab it.

Us: Okay, what kind of money are you putting into the deal?

Caller: None, I need a hard money loan for the whole purchase price. But, the property is worth $750,000.

Let’s stop the call example right here. This is where most people lose contact with reality. First, just about every lender I know is going to want the borrower to have some “skin in the game.” Translation, you have to put some cash into the deal for us to be involved. Yes, I know, you believe that that property is worth $750,000 fixed up or even more than you are paying for it. Without something to keep the borrower honest and tied to the property (aka: Cash into the deal), lenders will walk from the deal. Using a private investor or hard money lender to obtain funds doesn’t mean that you simply ask for the money, tell the lender that you are getting a smoking deal, and then they cut you a check. There is still work involved, due dilligence that needs to take place and parameters to follow. With that said,ARV loans are readily available.

So, how do you get an ARV rehab loan?

Here are a few parameters to follow:

1. Do you have cash into the deal?
2. Are you purchasing the property for 65% (or so) of the future appraised value? You can expect to get this amount of dollars from a private lender on an ARV deal. So, you either need to get close to this number or come in with more cash to cover the rest.

That is most of it. Those two items are the most crucial. If you have deals that meet these two parameters, then we can most likely get you funds to purchase as well as funds to do the rehab work necessary to complete the project. Please call us at 415-839-8444 or better yet, get the ball rolling with some information about you and the deal.

[tags]ARV Loan, Rehab Loan, Hard Money, Real Estate, Financing[/tags]