hard money loans

What Is LTV – Loan To Value Ratio?

By on July 3, 2018   /   hard money loans  
What Is LTV Loan To Value Ratio

What Is LTV Loan To Value Ratio

If you’re searching for “what is ltv?“, “what is ltv ratio“,  “what does ltv mean“, or “what is a good loan to value ratio” this post will help!  LTV ratio (loan-to-value ratio) is a ratio used to determine lending risk assessments reviewed by financial institutions and various types of lenders prior to approving mortgage loans. Usually, if an assessment has high LTV ratios, they are considered to be a high risk, thus if the mortgage loan gets approved it will often be at a much higher cost to the borrower. In addition, loans that have higher LTV ratios could require mortgage insurance to be purchased by the borrower to offset the lenders high risk.

BREAKING DOWN ‘Loan-To-Value Ratio – LTV Ratio’

To calculate the LTV ratio, the mortgage lien amount is divided by the properties appraisal value, which is provided as a percentage. For instance, when a $92,500 mortgage is taken out by the borrower for purchasing a property with an appraised value of $100,000, the LTV ratio calculations would be 92.5%, or 92,500 out of 100,000.

Therefore, LTV ratios are an important part of mortgage underwriting, whether or not for purpose of refinancing existing mortgages into new loans, buying a residential property, or simply borrowing against a property’s accumulated equity.

Every lender assesses loan-to-value ratios to decide the exposed risk levels that they will have if approving a mortgage, which is calculated as delta between the total borrowed amount and property’s appraisal value. When a borrower requests a loan near or at appraisal values, the LTV ratio become higher, which is perceived by lenders as a larger risk of the borrow defaulting on a loan due to having little or no equity within the property. Therefore, in the event of a foreclosure occurring, lenders could have challenges selling the property for the sufficient amount of covering the mortgage balance while making a profit from the sell.

High LTV Ratio Implications

Although financial institutions use more than the LTV ratio for deciding on securing home equity and mortgage loans, or line of credit, it has a major role with the overall expense to the borrower. Most lenders provide home equity and mortgage applicants with interest’s rates as low as possible when the LTV ratio score is 80% or less. However, higher LTV ratios do not exclude a borrower from getting approval for the mortgage loan, but it increases the total costs associated with the loan the higher the LTV ratio is. For example, if a borrower has a 95% LTV ratio, they could be approved for the mortgage loan. However, the interest rate offered could be up to one percent point higher compared to a borrower with a 75% LTV ratio. Additionally, with higher interest rates, lenders can add on the requirement of borrowers purchasing mortgage insurance with higher LTV ratios. Mortgage insurance can greatly increase the monthly mortgage payments for a borrower, and the mortgage insurance coverage can be required until the LTV ratio is under 80%.

What Is A Good Loan To Value Ratio?

What LTV ratio is good and is able to assist with getting approved for a loan?

This will depend on the type of loan and lender’s preference. You will commonly have a higher approval chance by investing more equity, or having a lower LTV ratio.

The magical number for home loans is 80%. If you try to get a loan over 80% of the homes appraised value, you typically require a PMI (private mortgage insurance) for protecting the lender against high risk. This is an additional expense, but it can often be canceled once the borrower lowers the LTV ratio under 80%.

Additionally, 97% is another significant number. There are lenders that will allow borrowers to purchase with a minimum of 3% down, however, you will be required to have mortgage insurance coverage and could be required for the lifespan of the loan. FHA loans will require 3.5% down.

When it comes to an auto loan, the loan-to-value ratio commonly gets higher, but limits or maximums can be set by lenders, while changing rates of the borrower based on how high the LTV ratios are. There are situations where a borrower may be able to get approved with an LTV ratio over 100%.

Brad Loans Offers Up To 100% LTV With Cross Collateral

Brad Loans offers 100% FINANCING if borrower has an another property that is free and clear or the property that has positive equity (it’s worth more than is still owed), it can be pledged as additional collateral (aka a Cross Collateralized Loan). Learn more about 100% LTV hard money loans here.

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How Does A Hard Money Loan Work?

By on August 17, 2017   /   hard money loans  

How Does A Hard Money Loan Work

If you wondering “how does a hard money loan work“, this article should help explain what they are, what they can be used for and how to use them. Read more about hard money loans below.

Hard Money Loans

When you hear the words “hard money loan” (or “private money loan”) what’s the first thing that goes through your mind? Some shady looking lender who is conducting business in a dark alley while charging sky high interest rates?

In recent years, there have been some bad lenders that have really gave hard money lending a bad name when a few lenders decided to loan-to-own to people which provided very risky loans to borrowers while using real estate as collateral and they intended to foreclose on the property. Luckily, these hard money lenders don’t exist in this market, although there is still some bad blood in real estate investing for those who haven’t used the services of a reputable hard money lender.

This article will cover the basic of hard money loans, which include:

What Are Hard Money Loans?

Hard money loans are short term loans that are secured by real estate. They are often funded by private investors instead of conventional lenders like credit unions or banks. The terms are for about 12 months but they may be extended to 2 to 5 years. The loan does require monthly payments of interest or some principal and interest with a balloon payment at the end of the loan.

The amount that you can borrow is based on the value of the property. The property has to be one that you already own and wishes to use as collateral or it could be the property that you are trying to buy.

Hard money lenders are mainly worried about the property value instead of your credit, although credit scores are still important to lenders. Those who can’t get a conventional loan because of a short sale or foreclosure can get a hard money loan if they have plenty of equity in the property being used. When a bank says no, a hard money lender may say yes.

Types of Property Hard Money Loans Work Best For

You may get a hard money loan on most types of property which includes single family residential property, commercial, industrial, multi-family residential and land.

There are some hard money loan lenders that specialize in a certain property type like residential and may not be able to do land loans, because they have no experience in that field. Many lenders will have a particular niche that they are comfortable with. Ask which loans that they do.

Most hard money lenders won’t lend on residential properties that are owner occupied due to extra rules and regulations, but there are some that will go through the paperwork with the borrower. Many lenders will do 1st position while fewer will do 2nd position because of the risk.

What Deals Should a Hard Money Loan Be Used For?

A hard money loan isn’t best for all deals. When you are purchasing primary residences with good income history, credit, and there aren’t issues like foreclosures or short sales, conventional loans through a bank are best if the borrower has time to deal with the lengthy approval process. Hard money loans are your source of financing when banks aren’t an option or the loan is needed quickly.

Hard money loans are best for:

  • When real estate investors need to act quick
  • When the buyer has credit issues.
  • Land loans
  • Construction loans
  • Fix and flips

Who Needs a Hard Money Loan?

Real estate investors will often use hard money loans for various reasons. The biggest reason is that the ability of hard money is to fund it quickly. In many situations, hard money can be funded in a week. Compared to the 45 days that it may take for a bank loan. The application for a hard money loan takes about 2 days, in some instances it could be approved in the same day.

The capacity to get subsidizing at a considerably quicker rate than a bank advance is a critical preferred standpoint for a land financial specialist. Particularly when the land speculator is attempting to secure a property with many contending offers, a snappy close with a hard money advance will stand out enough to be noticed and separate their offer from whatever remains of the purchasers offering moderate regular financing.

Another reason a borrower may utilize a hard money loan is that they have been dismissed by the banks for a typical mortgage. Life doesn’t generally go as arranged. Short deals, abandonments, credit issues… they happen. Another vital thing banks need to see is pay history. In the event that a potential borrower as of late began another employment, the bank may deny the loan ask for because of lacking salary history, regardless of the possibility that the borrower makes a sound pay. Hard money banks can look past these issues as long the advance be reimbursed and the borrower has enough value put resources into the property.

Interest Rates and Points For a Hard Money Loan

The financing costs and focuses charged by hard money loan specialists will shift from bank to moneylender and will likewise fluctuate from district to locale. For instance, hard money loan specialists in California by and large have bring down rates than different parts of the nation since California has numerous hard money loaning firms. Expanded rivalry prompts an abatement in costs.

Hard money moneylenders go out on a limb with their loans contrasted with an ordinary bank advance. Because of this higher hazard required on a hard money loan, the financing costs for a hard money advance will be higher than typical mortgages. Financing costs for hard money advances extend from 10 – 15% relying upon the particular moneylender and the apparent danger of the loan. Focuses can go somewhere in the range of 2 – 4% of the aggregate sum loaned. The financing costs and focuses may shift significantly contingent upon the loan to esteem proportion.

Hard Money Loan to Value Ratios

The credit sum the hard cash bank can loan is controlled by the proportion of advance sum isolated by the estimation of property. This is known as the credit to esteem (LTV). Numerous hard cash moneylenders will loan up to 65 – 75% of the present estimation of the property. A few loan specialists will loan in light of the after repair esteem (ARV) which is the evaluated estimation of the property after the borrower has enhanced the property. This makes a less secure credit from the hard cash moneylender’s point of view, in light of the fact that the measure of capital put in by the loan specialist increments and the measure of capital contributed by the borrower diminishes. This expanded hazard will make the hard cash loan specialist charge a higher financing cost.

There are some hard cash loan specialists who will loan a high level of the ARV and will even back the recovery costs. This may sound incredible from the borrower’s perspective in the first place, however these sorts of credits have a substantially higher hazard included and the loan fee and focuses will be MUCH higher. Expect 15 – 18% intrigue and 5 – 6 focuses when a bank finances an advance with practically zero up front installment from the borrower. Sometimes, it might be advantageous for the borrower to pay these over the top rates with a specific end goal to secure the arrangement in the event that they can in any case produce benefit from the venture.

Borrower Requirements for Hard Money Loans

As talked about before, hard cash moneylenders are principally worried about the measure of value the borrower has put resources into the property that will be utilized as guarantee. They are less worried about the borrower’s FICO score. Issues on a borrower’s record, for example, an abandonment or short deal can be disregarded if the borrower has the money to pay the enthusiasm on the advance.

The hard cash loan specialist should likewise consider the borrower’s arrangement for the property. The borrower must present a sensible arrangement that shows how they plan to at last result the credit. Generally, this is enhancing the property and offering it or acquiring long haul financing later on.

Finding a Hard Money Lender to Work With

There are a lot of different ways to find a good hard money lender. One way is to do a Google search for hard money lenders in your area. There will be other companies in the search results as well as lists made by other people. This provides plenty of lenders to start contacting and checking out.

You can also try attending a local real estate investor club meeting. These meetings are in many cities and are well attended by hard money lenders looking to network with buyers. If no lenders are present at the meeting, ask other investors if they have a lender to recommend. Conventional mortgage brokers, real estate brokers, and other professionals can help to recommend a hard money lender. Check your network and see who is recommended.

Once you have a few on your list, start contacting them and find the best lender for your deal.

Conclusion

We hope that this article has given you enough information and confidence to consider hard money lenders and loans for a future estate deal. The higher interest rates may seem a bit scary, but the benefits of getting a loan quickly and being able to get financing when everyone else has said no is well worth it. Brad Loans by eMortage is a hard money lender in Phoenix, Arizona offering hard money loans to residential and commercial property buyers.

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Purchase Rentals In Phoenix, AZ With No Money Down Using Hard Money Refinancing

By on May 17, 2016   /   Blog, hard money loan approval, hard money loans, refinancing  

How To Purchase Rentals With No Money Down Hard Money Loans

Real estate is often accomplished by investors through a short term loan. A short term loan is the solution to purchasing rental properties and also fix and flip homes. It is also used in purchasing homes as rental properties until a long term financing can be found.

The use of hard money will more than likely be expensive, even more than what traditional financing would be, and it is best to have some short term financing to use. However, many investors find a hard loan as a terrific option, yet, this is going to cover short term financing options as well. You can also use a conventional refinance loan for purchasing rental properties without having to have the money to put anything down.

Hard money loans, what are they?

A hard money loan is something that helps an investor to purchase rental properties for a short term, usually six months or less. They will have different terms than the traditional bank loans do. Those who lend out hard money loans are going to have a much higher interest rate, with an interest rate of twelve to sixteen percent, plus points for the money they loan you. For those who do not understand what points are, it is a percentage of the amount of the original loan and accumulates other charges and can accumulate as much as four points rather quickly.

Is there any certain reasons that an investor would use hard money to purchase property?

Investor will choose to go through an investment to purchase a rental property with a hard money loan because the lender may be willing to cover the entire amount of the loan plus what it is going to cost them for the repairs, referred to as the after repair value (ARV). These lenders are willing to loan the investor as much as sixty-five to seventy percent of the ARV, you need to remember that that is not the purchase price, it is the price the house will be worth after it has been flipped.

So, how does the lender make their money off of a hard money deal?

For instance, an investor purchases a home for $60,000 and the after repair value is $130,000, the lender is going to loan the investor up to seventy percent of the after repair value of the property. This means that the lender is going to loan the investor up to $91,000 on the property based on the after repair value. Estimates of all repairs have to have bids and receipts and the lender will cover those costs as part of the hard money loan.

The lender is going to be paying twenty-five percent of the repairs at the closing and the rest of the payments will then be in twenty-five percent increments as each repair is finished. The loan principle, interest, and points will be paid in one lump sum after the house has been sold. The lender isn’t going to charge any interest until after the house is sold, however, the lender in this case is going to charge a fifteen percent interest along with the four points, which they are willing to reduce the points paid if you do some deals with them.

When dealing with a hard money lender the cost to you can add up quickly. The interest alone for this deal is going to cost you $6m825 plus the points is already $3,640 for a six month loan. You may find a hard money lender that is will to lower the charges on interest and points, of course these are going to want you to share the profits evenly with them.

Personally, I never use a hard money loan, but the options are there for those who have no other options.

How do you locate hard money lenders?

Hard money lenders are out there, many of them will only do business in certain states, while others may do business across the nation. Begin by searching on the internet for a hard money lender in the same state you live in, using any of the search engines. Here is a few hard money lenders in case you would like to talk with more than one: Located in Phoenix, AZ is the Brad Loans, and there are the Private Money VS. Hard Money for Investment Properties.

What is Private Money VS. Hard Money for Invest properties?

Private money is when you are getting the money from someone, not from a mortgage co. Or a bank, or any other type of lender but from a person. Sometimes a regular person will loan the money needed for real estate property, especially right now, with interest rates as low as they are. Right now the average interest rate on a CD is under one percent. No one can keep up with the ongoing inflation with the interest so low. While the wealthy is now looking for higher yield investments while they are still secure others are buying up properties. By loaning out to investors could be the perfect thing for them at this time, increasing their investment returns and helping investors out, this is called Private Money Loans.

How would you go about locating Private Money investors?

The hardest issue with private money is locating someone that will loan you the money. If you go online you can find many websites that say that are private lenders and that you can borrow money for a fee. From personal experience, this is not the way to go about it as you don’t never know if they are just going to take your money and give you the name of hard money lender or what. Private money lenders are more cautious than that and they only want to do business with people they know they can trust.

The best private money loans comes from someone you know and can trust. For instance, My private money loans have been coming from my sister, she uses her profit returns towards the increase of her son’s college fund. And she will lend me the money for an eight percent rate which is reasonable, without any points added in there. She knows that I know what I am doing and that I am going to be honest with her. This is a lot cheaper than financing with hard money.

Can I purchase rental property with hard money without having any money to put down?

You can refinance a hard money loan if you used a hard money loan to also finance any repairs, using the Fannie guidelines, of course it has to be with a seasoning period. There is not cash out refinance allowed it you do not have a seasoning period. This gives the home a higher loan amount than its original cost since the repairs have also been financed. It means that you will be able to get the long term loan to take the place of a hard money loan and don’t have to wait around as you would if it was a hard money loan.

For instance, you purchase a rental property for $100,000 using a hard money loan of one-hundred percent of the purchase price with another $35,000 financed for repairs, making it a total of $135,000 in loans then you refinance after the home has been repaired using a Fannie loan making the loan amount go up to seventy-five percent of the new appraised value. The if the new value is appraised at $185,000 the amount that you could refinance would be $135,000 but according to the Fannie guidelines you cannot cash out a refinance. However, the original amount loaned to you by the hard money lender could be refinanced.

Going this route tends to be more expensive because it has a higher interest rate, then there are the added points, and the costs of the refinancing with Fannie Mae, but keeping in mind that you have just purchased a long term rent property, repaired it, and had almost no out of pocket expenses.

The use of traditional banking for financing short term loan with an investment property:

Investors can find banks that are willing to give them a short term loan, although they can be hard to locate and usually the investor will already have a good standing with the bank. Our short term loans are done through a portfolio lender to finance our short term investments. The portfolio lender will have an interest rate of about 5.25 percent, with 1.5 percent on the loan. This means we can get up to a seventy-five percent loan on the original value of the purchase price, but we can complete the loan process in a couple of weeks. There were times in the past that a bank would finance these loans at a hundred percent of the value and the funds would be ready on the same day, but, not any longer.

Lines of credit are offer by traditional banks, however, they are not referred to as short term loans. Those banks will usually want something such as real estate or other value property for collateral before giving anyone a line of credit. So, if you have a home and you have equity in it you should be able to get a line of credit. The bank I deal with charges a five percent interest rate and allow up to ninety percent towards the value of my residence, and I can get up to eighty percent on investment properties.

Give us a call today if you are interested in hard money loans for fix and flip, finishing construction, refinancing your mortgage, buying land, or need loans for other investment opportunities but have bad or no credit. Give Brad Loans a call today at (602) 999-9499.

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