Tag Archives: transaction
Homeowner? Get Higher Loan Amounts On Any Loan Type
If you are a homeowner you can easily get loans that require collateral and thus obtain advantageous terms on your loans. However, not everybody knows that being a homeowner will also guarantee you better loan terms on other loan types including unsecured personal loans. But most importantly, whether you want a secured or unsecured loan, you will be able to get significantly higher loan amounts thanks to home ownership.
Homeownership represents a significant risk reduction for the lender even if the assets are not used as collateral for the loan. Thus, anyone who is a homeowner will find in lenders a better disposition to negotiate loan terms and will be able to obtain more advantageous terms on loans including higher loan amounts without having to overpay for them.
Homeownership and Risk
Homeownership and risk are two concepts that are related. The risk implied in any financial transaction will depend on the applicants creditworthiness and on other factors too. One on these factors is the applicants ability to repay the loan which is determined by the income and all the applicants assets that can be eventually sold to use the money to repay the loan.
Thus, being a homeowner greatly reduces the risk involved in any financial transaction, even if the property or properties are not used as collateral for that particular loan. This is due to the fact that regardless of the use of the properties, they are still unofficially guaranteeing repayment of any applicants obligations because there are legal processes other than repossession that can force the borrower to sell the property to repay the loan in the event of default.
Risk And Loan Amount
We have analyzed the fact that homeownership and risk are related, now we will go a step forward to see how risk and loan amount are related. Actually the risk involved in the financial transaction determines most of the loan terms. The loan amount is definitely not the exception. If the risk is higher, the lender will prefer to lend the least money possible in order not to risk too much on the financial transaction.
Thus, a lower risk will imply that the lender will be willing to lend a higher loan amount as this will increase his profits without too much risk of default. Since the risk can be pondered in terms of money, the higher the loan amount lent, the higher the risk. But the opposite is also true: the lower the risk implied (due to other factors like homeownership) the higher the loan amount that can be lent.
Conclusion
From the above two considerations, one can infer that homeownership implies a lower risk in any financial transaction regardless of the use of the property as collateral of the loan or not and that this risk reduction affects the loan terms in a positive way. Thus, due to the risk reduction produced by homeownership, the applicant can get lower interest rates, longer repayment programs, lower monthly payments and higher loan amounts. This last consideration is the logical consequence of the whole analysis and explains the reasons of the articles title.
Hard Money Loans
Commercial Hard Money Loans
Commercial Hard Money Loans are real estate loans based primarily on the collateral. Real estate collateral is the protective equity in the real estate transaction, and is the primary factor in qualifying for a Hard Money Loan. These types of loans are typically provided by Private Lenders who are looking for sound transactions based on equity and not on credit scores.
Hard Money Loans are an option when a real estate transaction falls outside the parameters of conventional lending standards of banks, life insurance companies, and other sources of traditional loans. Conventional loans are based on the borrowers credit and income, but credit and income are not primary factors with hard money loans. Banks have government regulations to contend with, where as regulatory red tape can be bypassed with Hard Money loans due to their origination being with Private Lenders.
Private Lenders, or Hard Money Loans, are a source of funding for:
* Property acquisition with little or no cash from the borrower.
* Short term cash for development, or to rehabilitate property.
* Investment capital instead of a business partner.
* Transactions that need to close quickly.
* Transactions that dont qualify for conventional financing.
* Borrowers who dont have the normal income documentation banks require.
* When other properties, or assets can be provided in tailoring a loan.
* For sound transactions that make sense to use this approach.
Being a Private Lender and not a bank allows the Lender to make quick decisions. It also allows the Lender to provide more flexibility in structuring the deal. There can be many advantages when working with a Lender that can tailor the transaction and make quick decisions.
** Benefits of using Hard Money Loans **
1. Easy Application Process – Private Lenders base their decisions on the current quick-sale market value, the purchase price, and condition of the property being offered as collateral.
2. Uniqueness of the collateral – special use properties and personal property, which are not acceptable to a bank, may be considered by the Private Lender.
3. Flexibility – Private Lenders have the ability to tailor the loan to meet the needs of the
4. transaction.
5. Seasoning – a property without a track record of payments can still qualify.
6. Quick Closings – since the propertys equity is the primary factor, less information on the borrower is required.
7. No Pre-payment penalties – Hard Money Loans are typically used for short-term situations.
8. Therefore, in many cases early payment of the loan does not penalize the borrower.
9. Pre-qualification – allows borrower to be a cash buyer.
Although understanding the benefits, what most borrowers consider the downside of Hard Money Loans is the interest rate.
Yes, the rates are higher than conventional financing, and if that was the only consideration then Hard Money Loans might not look like a viable means of financing. However, when a borrower is analyzing the entire transaction and not just the expenses, the borrower may well find the profits far out ways the short term costs. To illustrate this, in a recent transaction a borrower paid what he considered an exorbitant short-term interest rate, but after he netted $3 million in 30 days in flipping a commercial property, the rate was really inconsequential.
It is the quick and flexible access to capital that makes the borrower money. When considering rates, consider that “time is money.” What are the benefits of a quick acquisition? Does the Hard Money Loan allow the borrower to make money on real estate that would otherwise need to be bypassed?
Many transactions seeking financing, dont meet the requirements of a bank loan, dont have adequate borrower credit, income or documentation, or involve commercial property that is in some stage of need of repair. These factors increase the risk of the transaction and eliminate the conventional lender as a source of funding. Private Lenders will accept the risk and this is reflected in the interest rate. As in all things financial – the higher the risk, the higher the rate of return.
Instead of forfeiting a deal, work with a Lender that has the ability to offer alternatives and meet critical time lines. For many commercial borrowers Hard Money Loans have become an alternative source of funding they rely on to generate profits.
** Tips **
* Work with Lenders who are themselves Investors instead of bankers. The will have a better understanding of what you need and what you will be faced with.
* Consider the Lenders involvement as a positive. The more feedback they can provide, the more dedicated they are to your project, the better chances of your success.
* Although other real estate and personal assets can be provided for additional collateral, so you dont lose everything in the event of a default, consider properties that have the equity to support the transaction by themselves.
* Ask that the Lenders process be explained in detail – step by step.
* Understand the different fees and amounts charged by a Hard Money Lender.
* Use Hard Money Loans when you need: quick closings, have an opportunistic acquisition, rehabbing distressed property, sale/leasebacks, bridge financing, construction, short term financing, transactions that dont meet normal bank standards, and avoiding foreclosure.
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Funding Projects
For assistance in funding a project please review information from The Project Corporation, a professional consulting firm with expertise in business funding.
For more information on obtaining funds from the capital marketplace please visit Business Loans and Venture Capital