From now until the end of 2008 less a handful of days because of Holidays or other commitments I will share with you 30 tips to help with faster, smoother, cheaper, better, mortgage closings. After all -no money -no sale. So unless you are dealing with cash these tips will help. I depend on closing mortgages for a living so if you are in Georgia or Florida and buying a home to live in please call me. In Georgia we are a lender and in Florida a broker. If you are an investor or commercial property buyer I can provide mortgages in most states. My number is 866-946-0120 and I am at extension 101.
Mortgage Tip #29
Private money sounds mysterious and elusive. In reality it is neither! One of the reasons I have been able to create so much market activity over the years that would otherwise never have existed is because of a network of investors and companies willing to fund acquisition and rehab deals for real estate purchases that the banks and big lenders either cannot or will not fund.
Private money is often referred to as "hard money". It originally was called hard money because it was funding for a hard asset -a class of investments which is secured by a redeemable, equity improving secuirty such as diamonds, gold, iridium, or real estate. Of this class of securities real estate remains the preferred investment for the majority of small asset investors. In other words real estate isn't going anywhere and the laws make it easy to redeem and nature makes it impossible to counterfiet.
Sourcing private investors is as simple as Googling for either private lenders or hard money lenders. Feel free to add hard money lender contact information to REISwat.
Origination points for private, hard funding range from about four percent to eight percent usually depending on how many people (brokers, agents, etc) are being compensated and what the lender charges. Interest rates generally range from about ten percent to fifteen percent. Most hard money loans do not have a pre-payment penalty because of the origination fee but sometimes they do.
Private lenders generally like a strong equity position and the way they insure an equity position in today's market is to lower the loan to value (LTV) available or require the borrower to bring some of their own funds to the closing table. Where many lenders would allow up to 100% of the acquisition price plus 100% of the rehab up to 80% of the subject to appraisal in years passed most are now limiting to 70% of the sales price now. Yes, there are still a few who will go beyond that but it is not as likely as it was in the previous few years.
Also, it is important to note, many hard money lenders now want the borrower to show documentation including income, assets and credit.
Here is what you, as Active Rain agents, get to know that many do not: refinance seasoning has changed.
Until December 1, 2008 Fannie Mae did not require any seasoning on title to allow the owner to refinance to the new appraised value. However, effective that date Fannie now requires a minimum of 6 months seasoning on title to refinance to the new appraised value and most lenders double that even when selling to Fannie Mae. When your clients are using hard money to acquire investment properties you will need prepare them to be in that hard money (private loan) for 12 months. At this point 6 months is really not a realistic and available solution.
As always I hope this helps you deliver better service and if you have any questions never hesitate to ask.
THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.
EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.
Novation Mortgage, 2501 E Piedmont Road, Suite 201, Marietta, GA 30062 Georgia Residential Mortgage Licensee 20014. Florida Mortgage Broker Business MBB 0703760 FHA Lender - Equal Housing Lender
Ken Cook - Web coder (I write the programs that make the whole world zing!) (678) 439-8683 Anything your mind can conceive I can create - online that is!
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NOTICE: I have been writing in this blog since July 2006. Some of the older articles may contain information that has changed. Please check the date and phone me if you have any questions.
2 Comments
on Agent Tips Countdown: #29 Using Private Funding
NOV
29
2008
Ken.... some good tips and explanation about Hard Money. I actually stopped pursuing hard money investors, because there weren't many. But on top of that, I rarely would have an investor that had the cash nor the equity. But curious... you said, until 12/01/08, fannie didn't have a seasoning requirement. I thought this was implemented a year ago? But you do have it right, most or many investors will make that 12 months, not 6 months. thanks
Jeff - it's a part of 0822 and we were able to sell non-seasoned refis through November. Did our last one on the 15th (of this year). We do about as many privately funded deals as conventional but that's because we've spent so many years catering to real estate investors. Thanks for the comment! We'll talk soon -busting hump to keep up the reserves for FHA right now ;)
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Ken.... some good tips and explanation about Hard Money. I actually stopped pursuing hard money investors, because there weren't many. But on top of that, I rarely would have an investor that had the cash nor the equity. But curious... you said, until 12/01/08, fannie didn't have a seasoning requirement. I thought this was implemented a year ago? But you do have it right, most or many investors will make that 12 months, not 6 months. thanks