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With current interest rates hitting historic lows, one would assume it should be easier than ever to accumulate a mortgage loan, especially since the mortgage payments are more affordable due to lower interest rates.
However, pretty much 100% of loan products offered by institutional lenders today are strictly "prime" loans and they are available only to the best qualified borrowers with perfect, or nearly perfect credit, income, and employment. In addition, the property, which serves as collateral, must be in top shape as well to qualify.
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One of the most critical bi-products of the most up-to-date financial crisis, and the ensuing "great recession," was sufficient disappearance of "alternative," also called "non-prime," mortgage loan products.
In the past, when borrowers buying or refinancing property did not have a high sufficient prestige score but had solid jobs and incomes, they could qualify for alternative mortgage loans which compensated for the extra risk with higher interest rates.
Lenders which were making these types of loans demanded between one to three percentage points higher interest rates than those on the "prime" loans. The higher rates were deemed sufficient to compensate for the extra lending risk.
In today's market that would make the interest rates on "non-prime" mortgages around 5% - 7%. However, a plethora of exact financial regulations and the sufficient disappearance of the inexpressive secondary mortgage market virtually eliminated these mortgages.
At the same time, due to the tough economic times, many real estate buyers and owners who have solid down payments or good equity in their properties, cannot qualify for prime mortgages due to lower Fico prestige scores or because they are not meeting some other loan qualifying requirement.
In some cases, it is the property, not the borrower, which does not qualify for the financing. This is coarse in case of buy or refinance of foreclosure properties or the so-called "fixer-uppers," which are properties requiring critical repairs.
Private Placement loans, some time called "Bridge Financing" or "Hard Money," can supply a viable financing alternative for borrowers or properties, which do not qualify for the prime loans.
What is a inexpressive Placement loan? In short, it is a mortgage loan funded straight through a non-institutional lender such as non-public pension fund, Ira withdrawal account, hedge fund, speculation group, mortgage broker, and/or inexpressive lender, which is primarily asset-based.
These loans wish higher down payments (purchase), or great equity positions (refinancing). In some cases many properties can be cross-collateralized as a protection for the loan.
Typically, the inexpressive Placement loans are short-term (two to five years) and it they are used as temporary (bridge) financing, not a permanent loan. Here are two real-life examples how this type of financing was used effectively.
Bob (name has been changed) was a real estate investor who wanted to buy a short-sale condominium property at a great discount. Bob was a solid borrower with perfect credit, job, income, and a large down payment. However, the task in which the condo was located had a pending litigation between the Homeowners relationship and the developer.
None of the prime lenders would not lend on it, even though the condo unit was not directly involved in the lawsuit. Bob got a well good price on the condo, which was about 30% below the market value.
He put a critical down payment and our firm obtained for him a inexpressive Placement loan, which funded in about three weeks. Bob thinks will sell, refinance, or pay off the property within three years. In the meantime, this condo is an perfect speculation rental for which he paid about 70 cents on a dollar.
The second example illustrates how inexpressive Placement was used to support property owners with salvage their equity straight through refinancing. Mark and Joan (names have been changed) were successful company owners and operators for over 30 years. They owned a market construction and several income properties, most of which had critical equities.
After Mark was diagnosed with serious illness and could no longer work, their company deteriorated and eventually had to be done down. Their customary source of income was gone and so were their savings and good prestige rating.
Soon they defaulted on their mortgages and the bank called the loans due and payable. The lender started the foreclosure and Mark and Joan were unable to refinance their properties due to poor prestige rating and reduced income. In addition, there was some deferred maintenance on their properties, which made them very difficult to sell in as is condition.
When Joan contacted us, their situation was urgent. They had no funds to cure the defaults and they were about to lose their properties with great equities. Our firm was able to arrange a inexpressive Placement Loan with a non-institutional lender, which was funded in about four weeks.
The new mortgage paid off all existing loans and gave Mark and Joan much needed cash reserves, together with additional funds to fix up the properties. About one year later, Joan was able to sell their market and income properties and cash out their equities. The inexpressive placement loan was paid off in full and the borrowers saved hundreds of thousands of dollars in equity.
Here are basic characteristics of inexpressive Placement financing:
Loan must be secured by real estate (all types of properties are considered, cross-collateral can be accepted) Loan-to-Value (Ltv): 50% - 75% of the appraised value (lower in case of vacant land) Loan amounts range between 0,000 to ,000,000+ Typical loan term: 2 - 5 years (longer terms are available) Typical interest rates: 8.9% - 12.9% Quick funding, usually in 3 - 5 weeks
Obviously, inexpressive Placement loans are not approved for every lending situation and seldom are used as permanent or long-term financing. They wish solid equity and the interest rates are higher than those of prime loans. However, these kinds of loans can be especially useful when prime lenders are unwilling or unable to lend due to borrower or property requirements and/or when there is a need for a quick funding.
In most cases inexpressive Placement loans are used as "bridge" financing, allowing borrowers to either swiftly accumulate an captivating property or to refinance their property in order to hold equity or get a cash-out. The typical exist strategies are refinancing or sale of the property.
underground Placement Loans - Alternative Mortgage Financing for Buying and Refinancing Properties
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