Cross Collateralization Hard Money Loans

October 9, 2008

Cross Collateralization is a phrase used when we encumber two or more properties under a single blanket loan. It is a good tool to use if you do not have the equity that hard money lenders require in the subject property, and can also be used to help purchase property with little or no cash out of pocket.

Hard money lending is changing all the time. With the recent downturn in the markets and bad news on most economic fronts, guidelines for hard money have tightened up along with the rest of the credit markets. A good example of this is the loan to value on which a loan can be made. In today’s market, that number is in the 60-65% range. What that means is that for every $100,000 in property value, you can borrower a maximum of $60-$65,000. When you factor in the declining real estate market, one can see how borrowing money can get difficult.

This is where cross collateralization comes in. If you own multiple properties, we can take a look at more than one, and add the total values of those properties together. The loan to value still must conform, but if you need a certain amount of cash in hand for a project or business purposes, the power of cross collateralization can help get you there.

Say, for example, you own two properties, each with $100,000 in value. You owe $40,000 on one, and $30,000 on the other. You need $50,000 cash in order to expand your business. At 65% loan to value, you will not net $50,000 using either of these properties. If we cross collateralize them, however, you now have $200,000 in property value, and $70,000 in liens. At 65% loan to value, or $130,000 in potential loans allowed against the properties, we now have the room to make that $50,000 loan to you.

Another way to utilize the power of cross collateralization is on a purchase. With the credit markets in turmoil right now, you need to be able to put money down when buying a property. If you own property with enough equity in it, however, we can structure your loan to minimize the amount of cash you must put down in order to acquire the property, using the same principals outlined above.

Posted in Hard Money Products