LOAN BROKERS - CAN WE PICK YOUR BRAINS? Hard $, Pvt. $, Direct Lenders, etc.

[Karen Margrave]

LOAN PROS, often I see on BP questions on Private money, hard money, direct money lenders, etc. Though I'm knowlegable on hard money loans, I know there are many out there that are curious and would appreciate picking your brains. Here's some questions I think will help the conversation:

1. What is the difference between private and hard money?
2. What does it mean "direct lender"
3. What are the criterias your investors ($ people) use to determine if they will make a loan (loan amounts, ROI, type of property (SFR, Multi Family, Office, Industrial, Land), area of country, credit scores, experience of borrower, new construction, rehab, etc.) ?
4. Do you have different classes of investors? (those that will only take certain credit scores or other criteria, and those that take more risk, etc.)
5. What LTV do your investors want, points and interest? Maximum loans?
6. On income properties what are the CAP rates investors are looking for? (or is that relevant?)
7. Tell us the #1 thing borrowers should know to get the loan they are looking for?

[Ann Bellamy]

[b]

Originally posted by Bill Gulley:

Originally posted by Brian White:

Great topic. Thanks to everyone who has contributed.

I am interested in learning more about Private lending. My main question is how are these loans collateralized to ensure repayment?

I realize this is a broad question but maybe someone could elaborate on some of the more common ways?

Thanks.

I see that this was your first post, so welcome to BP.

Therein lies the problems I was attempting to point out Brian. Loans are not clooateralized to ensure repayment of the loan, that is viewed as the borrower having the capacity to pay, the collateral only comes into play if the loan is not repaid as agreed and allows the creditor to reduce the risk of loss of principal, the loan might not be covered by collateral and with cash advanced loans the lender may seek a deficiency judgment to collect amount remaining.

Asset lenders, who loan strictly on the value of a property without other considerations are really, hoping for default thinking they get the property and that is not the case either unless the borrower deeds the property to the lender as payment for amounts owing. It's explained here in other threads, search foreclosure, deficiency and equity financing, that should bring up some these matters. Good luck

While there are certainly some asset based lenders who DO want to take back the property, the majority do not. We are interested in points and interest, and don't want to foreclose.

The costs associated with forclosure usually ensure that the foreclosing lender is LUCKY if they get all their money back. Frequently there is still a loss of capital when forclosing on a property, based on the auctioneer costs, advertising, public notices, the long time frame, legal costs, legal delays, bankruptcy delays, accrued insurance, accrued taxes, possible vandalism, condemned properties and declining prices. All contribute to a very high cost of foreclosure.

So while collateralizing a loan with real property IS designed to ensure repayment when the lender is an asset based lender, it is by no means a sure thing. Foreclosures are expensive, and if a third party buys the property at foreclosure auction, it is always at firesale prices and is not near full retail.

Not looking for sympathy here, simply explaining that not all asset based lenders want the property, most just want their money back.

Brian White, to answer your question, loans are collateralized by means of a mortgage or deed of trust, depending on the state. A promissory note is the promise to repay, and the mortgage is the instrument that links the property to the promissory note in the event of default. Both are handled by the title company or closing attorney.

[Bill Gulley]

:))

Yes, I should have said "many", but then I didn't say all, yes, lenders want the money back.