When President Donald Trump’s campaign chief Paul Manafort took out a $9.5 million loan on a Hamptons property in December 2016, it raised more questions than it answered. It turned out that Manafort’s newly created LLC, Summerbreeze, had tapped Federal Savings Bank of Chicago as the lender. But how did the bank know who to lend to?
Lenders
Lenders provide funds to borrowers in exchange for repayment of the money over time. Loans may be for a variety of purposes, including a mortgage on real estate or an automobile. A lender may also charge interest on the funds lent, or collect them from the borrower should he or she default on the loan.
Several types of lenders are involved in the PROPERTY LOANS FINANCING Mystery Revealed:
Retail lenders (banks, credit unions, and other financial institutions) offer mortgages directly to consumers and sometimes fund or originate them themselves. Wholesale lenders (financial institutions that buy mortgages from other lenders) are often referred to as correspondent lenders.
Portfolio lenders fund borrowers' loans using their own funds. These lenders are often more flexible than traditional lenders, but they tend to be more expensive.
They also often require extensive documentation, especially for investment property loans. These documents include your personal income and employment history, pay stubs, and tax returns.
In addition to the usual underwriting requirements, portfolio lenders will typically check your property’s DSCR (debt service coverage ratio) to ensure that you will be able to meet your payments and repay your loan over time. DSCR loans are very popular for borrowers who are looking to purchase investment properties or refinance existing investments.
These loans are often used for the purchase of rental or Airbnb property. They can be structured as balloon mortgages, requiring low or no monthly payments for a certain period before the borrower must make a large payment to pay off the balance of the loan.
Another option is seller financing, where the buyer and seller work out sale arrangements themselves without a bank or other financial institution involved. This can be a good option for people who have bad credit or don’t meet the qualifications for conventional land loans.
Hard money lenders, on the other hand, are usually private companies or individuals with significant cash reserves who are willing to lend for short-term projects that do not involve extensive renovations. These loans can be a good choice for people who want to flip properties but aren’t in a great position to qualify for conventional lending.
Brokers
A broker is akin to a sleuth, helping borrowers navigate the maze of mortgage lending guidelines and documentation processes. They can be as small as one or two employees in a single market, all the way up to large national firms with dozens of branches in multiple states. A good broker can save you hundreds, if not thousands, of dollars in the long run by pointing you in the right direction.
The best brokers take a consultative approach to their clients’ needs, and provide a level of customer service that can be compared with any bank or credit union. The best ones offer a variety of loan options for their clients, and even handle the heavy lifting if a client decides to move on. They are also a great source of information, as they know their stuff.
Sellers
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If you are interested in building a house on your property, but the project isn’t going to start any time soon, you might want to consider taking out a land loan instead of a mortgage for a home. These types of loans are referred to as lot loans and can be easier to obtain than other types of financing for building a home, although they usually carry higher interest rates because they are riskier to lenders than mortgages. However, they are an excellent option if you have the creative vision and patience to work through this process. It is also possible to take out a home equity loan, which can be a great way to use your existing home equity to purchase land or build your dream home.
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