Cross Collateralization Hard Money Loans

Filed under Hard Money Products by on October 9, 2008 at 3:46 pm {no comments}

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.

Aquisition and Rehab Loans

Filed under Hard Money Products by on October 3, 2008 at 9:16 pm {no comments}

I get a lot of calls these days from people looking to buy homes below market value here in California, rehab them and either sell or rent them. That is a very viable business plan, and done properly, can make you a decent income. The problem comes when people have no money to bring to the table. In todays market, finding 100% financing on something of this nature, regardless of the “after repair value”, is awful tough to find.

If you have no money to bring to the table, and own no property, this is not the best business to try and get into. You should find a partner, or save some money, before spending too much more of your time looking for 100% financing. If you have some money, say at least 20% of the purchase price, then you start to have some real financing options.

A program that I currently have access to can fund 100% of the purchase price or more. Keep reading though, you still need some cash. This program works on homes that are being rehabbed. Short sales that need new floorings, fixtures, etc. work well. Even properties needing major rehab can work, but the common theme is that you are going to put work into the property in order to improve the value. The investors on these loans like that, but want to make sure it gets done, so in exchange for lending you 100% of the aquisition cost we are going to require the funds to complete this work be held in a builders control account. In addition, you will need to bring the first six months of payments, and cash to cover points and fees to the closing table.

So if you have the ability to bring the cost of rehab, 6 months interest payments and fees to the closing table as cash, we can fund the rest of your project. You have no payments for 6 months, the rehab costs are available and easy to draw, and there is no prepayment penalty. These are typically short term loans, and sometimes we are able to obtain funding for more than the purchase price.

In addition to having some cash to bring to the table, there are some other qualifications. Credit score is not a big concern, but what is on your credit can have a bearing. Recent foreclosures, bankruptcies or major delinquencies will need to be explained, and compensating factors may need to be looked at. Owner occupied properties are also not going to qualify. This type of program is strictly for investment properties.

Loan amounts can vary, but range from $50k on up to $500k or so. Over $500k becomes a bit more difficult, and will require some additional financial and credit strength, but it is available for the right deals. Funding time on these aquisition and rehab loans can be as quick as one week, although a typical transaction can usually be completed in 2-3 weeks. Of course, if there are timing issues involved, we can work with those deadlines. Just be sure to mention those deadlines upfront.

Feel free to contact me with any questions. 877 462 3422. This is primarily a California program, but we can help in other Western US states.