The Four C's
Lenders will review four crucial factors before providing you with the
loan you are seeking, frequently referred to the “Four
Your Credit. So many loans over the past few years were predicated on the
FICO score of the borrowers. The score as a firm indication of the way you
have paid your obligations in the in the past and a good reference point as
to how you will pay these obligations in the future. But that is not the
only consideration that they use.
The Collateral. Quite
simply the overall condition, marketability and value of the property that
you are planning on encumbering. .
Your Capacity. Is your
income sufficient to retire your current debts and the proposed debt on the
Commitment. How much of your own money are you
putting into the deal. Are you willing to offer additional collateral.
So much of current lending is predicated on you
credit history .Chance are that if you’ve paid your bills on time in the
past, unless there is some unforeseen circumstance, you will most likely pay
them on time in the future. Conversely, someone with damaged credit has
shown a history of not paying their bills, for any number of reasons. For
example and unforeseen medical crisis not covered by health insurance, or
the borrower did not have health insurance. Divorce, death in the family, a
failed business or job relocation are also factors that would be considered.
If there is a consistent track record of failure to pay bills on
time, car repossessions, credit card write-offs, unpaid utility bills or
cable bills, etc. you would be classified as a non-prime borrower and would
expect to pay the appropriate “risk premium” in order to get the loan you
are looking for.
In the lenders mind, this
is probably the most important criteria that will be used in determining if
they will do the loan or not. Simply put, if you didn’t repay the loan and
the lender had to foreclose the property, is it worth enough to retire the
debt when they sold it. Their concern is the overall loan to value ratio. In
this case you loan request will be a proportion of the total value of the
property. For example; if the home has a market value of $200,000 and you
want to borrow $150,000 on a new first mortgage, the loan to value ratio
would be 75%.
Most lenders want to see you have an equity cushion in
the deal. If the borrower has an equity stake of 25% , there is a good
likelihood that you’ll do everything possible to protect that equity. On the
other hand, if you have no equity in the deal, you odds of defaulting are
While most mortgage lenders will lend you a
certain loan to value on a particular property, they are usually bound to
lend on the appraisal value or the purchase price, which ever is less. A
private money mortgage lender will usually lend on a percentage of the
appraisal value. This is extremely important when purchasing a property that
is substantially below the appraisal value.
Again the lender is look
at the loan to value ratio. If they had foreclose on a loan because of
borrower default, they will not only want to recover the principal
outstanding, but also their legal fees, cost of sale and unpaid interest.
Your ability to retire the debt in a timely
manner is also a factor in the loan. Much of the current mortgage
legislation concerns whether or not a borrower can afford the loan that they
were given. Job history, consistency, your other monthly obligations and
your overall income play into the debt ratio that you lender will allow. The
debt ratios used are referred to as front end ratios and back end ratios.
Front end ratio. This is the percentage of your proposed mortgage
payment to your income. It includes an allocation for principal, interest,
taxes and insurance.
Back end ratio This would include the housing
payment mentioned above as well as all of you other monthly obligations.
Commitment is displayed by either putting down
a substantial down payment on a purchase transaction, or leaving a
substantial equity cushion on a refinance transaction. If you are purchasing
a home for $200,000 home and put down $50,000 you have made a substantial
commitment and will not lightly walk away from that $50,000. On the other
hand, those with little or no money of their own invested are much more
likely to walk away from your obligations in a pinch. High loan to value
loans consistently show higher levels of default.
Hard Money Basics
Private money mortgages are mortgage loans funded by a private individuals, trusts, partnerships, real estate investment groups and retirement funds. These mortgages are often referred to as a hard money loan. These mortgages are not offered by a traditional bank or lending institution. This site provides you the information needed to locate and utilize these types of lenders if the circumstances dictate that you need their services.
Private mortgages are for a not for everyone. Most borrower seeking a private mortgage or hard money loan is an individual who has difficult or challenging issues that require them to seek non-traditional financing. The issues are usually because of credit, income, or property type and condition. If this is the case, you may want to explore a private mortgage. Common problems requiring a private mortgage include:
You are currently behind on your mortgage payments.
Currently facing foreclosure or have a notice of default filed against you.
Have tried to refinance but have been turned down because of credit or income.
Need a mortgage loan immediately and are willing to pay more to have it close quickly.
Trying to finish a construction loan
Financing a commercial property that has not had a steady income stream.
Financing an unusual property; commercial, hospitality or investment property.
For obvious reasons, a private mortgage will come at a higher cost than a traditional mortgage and you should always explore other mortgage financing alternatives first. After you’ve exhausted your traditional options, a private mortgage may be an excellent temporary mortgage solution for you.
Most private mortgages are for high credit risk borrowers or unusual property circumstances. As with any type of investment, the higher the risk, the higher the reward. That applies to both the borrower and the lender. If you are a high risk borrower due to your special financial condition, be prepared to give a private mortgage lender the higher return expected. In turn, your reward is financing a deal that preserves your capital or helps you to acquire the property. You can expect to pay private mortgage rates of 9 to 17% dependant on the risk and if the loan is a first or second mortgage.
Since private mortgages are used as a temporary mortgage solution , you should plan on keeping a private mortgage open for only a the time necessary to accomplish what you couldn’t do under the terms of a traditional.
Most situations requiring a private mortgage can usually be corrected within 6 to 24 months. Although a borrower requiring a private mortgage may be paying a higher mortgage rate on a hard money loan than a normal conventional loan, this option often makes sense, especially for someone facing foreclosure who will lose their home.
If you are a borrower, real estate professional or mortgage broker who is in need of a private mortgage we can help you. The equity in your property is the single most important factor for qualifying for a private mortgage because it helps offset the risk to the private money mortgage investor.
Private mortgages can also be used for many property types such as, homes, condominiums, townhouses, commercial properties, hotels, motels, construction loans and other real estate secured investments.
Use our site to assist you making a plan and contacting the appropriate lender. If you need immediate help, take a moment to complete our quick app form and we will contact you shortly. Please note. All information is strictly confidential. We are a direct mortgage lender, so your information is not shared or sold to any other parties.
Commercial mortgages are available through banks, commercial mortgage
companies, insurance companies and private lenders. Commercial mortgage
rates vary as widely as residential mortgage rates, based upon property
types and credit risks. While the most attractive financing can be found
with these types of lenders, they usually have restrictive lending criteria.
They may not want to lend on a single purpose property or a gas station.
Your credit or income background can also make it difficult to obtain
financing from traditional banks.
Private money commercial mortgages are also available through private
lenders who have more flexible lending criteria. Also known as hard
money lenders, private commercial mortgage companies focus more the
current value of commercial property than on your personal financial
capabilities, as the property may cover the debt service on its own. .
Most private money lenders take a common sense approach to the loan
request, focusing on the property cash flow and how the loan will be
When applying for a commercial mortgage, try to be as complete as
possible in the preparation of a loan package, whether you are trying to
obtain financing from a bank or a private commercial mortgage lender.
You should include the following:
• 2 years taxes returns for the borrowing entity and the borrower.
• 2 years financial statements on the property.
• A completed standard commercial mortgage loan application, which
includes a personal and business balance sheet
• A summary of the use of proceeds of the commercial mortgage you are
• A complete description of the property.
• The current selling price of the property.
• The cost of improvements you plan to make to the property, if
• An estimate of the property’s value when with improvements are
• A repayment plan for the loan, how the lender will be repaid.
• When seeking a bridge loan , provide an exit strategy for the loan;
will you refinance to a permanent loan, sell or transfer the property or
some other scenario?
When you are pursuing a loan with a private commercial mortgage company,
you should be prepared to show what liquid assets will be available for
the transaction.. Providing documentation that you are prepared to cover
the closing costs and fund the difference between the commercial
mortgage and the total cost of the property will make your commercial
mortgage loan application move through the steps to funding much faster.
Contact us for more info