Monthly Archives: August 2012

The Risks and Benefits of Balloon Home Loans

Different situations call for different solutions. The ultimate goal is to find the type of loan that addresses personal demands. A balloon home loan is one that might just be the right choice for you.

A balloon home loan is a short-term mortgage with a fixed monthly payment and interest rate. The monthly fees are relatively small, and after a period of ten years or so, the remaining amount (which is comparably large, hence the name “balloon loan”) needs to be paid in one huge lump sum. If the loan matures and the debt cannot be settled, there is the option of refinancing the said amount. Refinancing in itself entails several risks, for the rates will now be set according to current interest rates, eventually leading to higher loan payments in the long run.

For many, obtaining a balloon home loan is a very precarious decision. Things may go smoothly for five years or so due to the small amounts to be paid, but as the loan matures, not everyone will be completely sure they will be able to pay the remaining balance in full. For example, if one obtains a five hundred thousand-dollar loan, and at the end of the term was only able to pay fifty thousand, it might come as a shock to know that four hundred fifty thousand dollars need to be paid in lump sum. It is for this reason that balloon loans do not appeal to all types of money borrowers.

This type of loan, however, can be advantageous to people who buy and sell homes, for instance. They are able to get huge sums of money in one single business transaction, thus the low rates are certainly to their benefit. Another advantage is the fixed-interest rates, which are found to be even lower than those of adjustable rate mortgages.

A good guiding principle would be the following: balloon homes are intended for short-term financing, thus if you are planning to sell your home before the loan matures, or you are certain of being able to pay the lump sum, obtaining a balloon home loan would be beneficial. If you plan to hold on to the property for a long period of time, there is a risk of refinancing, which might turn out to be a nightmare due to higher interest rates. An even graver consequence is that you might not be able to pay the new loan, and end up losing your home and property entirely. Thus if you’re looking for a more stable, long-term mortgage loan, it would be better to seek other types of home loans. Important things to keep in mind when applying for a balloon home loan are the interest rates, the due date of the lump sum, the outstanding balance, the option of refinancing, and effective management of installment payments.


Home Loans: What Are the Steps to Do If Your Home Loan Application Is Rejected?

Before submitting the application, we know for a fact that there is a high percentage of being rejected. The truth hits us hard when it happens. People who have been rejected may give up to this point.

If you’re application was rejected what will you do next?

At this point we finally grasp what our lenders are trying to say to us which is the percentage of failing is indeed much larger than the approval. The next move here is to find out where we failed.

Right now you have to think whether you want the loan or not. You are at a crossroad.

You have to think things through this time. Gauge if you really want to move or just give up. Set things in to perspective and do not waste time.

If you decide to go on then you have to set a new plan this time. A plan that is formed to get better results. In order to do that you have to know where you failed. Asking your lender on this matter is a good start.

To help you further, below are good tips to get you going.

Cheaper properties can help your loan get approved:

When your application is for a property that’s too expensive then lenders will reject that application. You have to get a property that is much suitable for you. Shop for cheaper properties, that’s the key!

Your chances of getting approved is base on your ability to pay your dues. If the lender sees that you can’t afford the loan then obviously you will be denied. So weigh your plans and go for something that you can handle.

Think and see if things are better and then that’s the time you’ll decide.

If the banks says that the property is no good then find another affordable one.

If a house and lot is too much then try out the condominiums or town houses.

Ask the bank to evaluate your application again:

If you doubt the results then have someone inside the agency to re-evaluate your application. This can be done if you just ask nicely.

Re-evaluation starts with the applicant writing the agency a letter. This letter must be good and true since your application’s future relies on it. You have to set everything straight. Do not set excuses and just tell the whole story as it is. In the event that something bad happened make sure it’s real and a one time event.

Right now is the best time to know that your re-evaluation can go smoother when you have good credit scores.

Most of the time things do not go the way we want it in a loan application. The odds are against us. So when we get rejected we should remember that we shouldn’t give up. Push forward and set a better plan. Ask for another evaluation. Get things done.


A Look at Hard Money Loans For Home Purchase and Residential Hard Money Lenders

Hard money is a way to secure property in a short period of time then refinance into conventional finance and can provide an alternative source of financing for real estate investors. Conventional institutional lenders will not finance hard, hairy loans and on the other side equity investors demand very high returns and/or shares of profits.

Investors who borrow hard money understand that this type of loan is more expensive than conventional loans. A hard money borrower perceives that the loan’s value extends beyond its cost. Investor rehab loans are particularly easy to find with a number of competitors but at the same time you should watch out for the hard money lenders that are also wholesalers.

The Lenders

Lenders of so-called “hard money” are becoming more common and more accessible: Perform a search for “Las Vegas hard money lenders” and you will discover many results, many for the state of Nevada, specifically. There are even private lenders based online, at your convenience.

Lenders have much stricter criteria these days, and for a good reason. In today’s society, the laws favor consumers, not banks. So lenders turn to look at whether or not the applicant is worth the financing and if the business plan is practical. They can scroll through the list of entrepreneurs and make a selection based on the person they wish to lend money. Most loans when approved are made via credit card or PayPal.

Most lenders ask borrowers to pay a minimum of five percent upfront deposits, as a guarantee. The greater amount of deposit will shrink your interest rates and mortgage payments under most circumstances. Lenders want the loan to be current, not to have to complete a foreclosure. But can you make up the defaulted amount over a period of months?

The Borrowers

Most people apply for hard money loans when they have credit problems, are in default, have had a foreclosure or bankruptcy, have been recently unemployed, or for some reason cannot provide proof of income.

Borrowers are advised not to work with hard money lenders who require exorbitant upfront fees prior to funding. If you feel you have been the victim of unfair practices, contact your state’s attorney general office or the office of the state in which the lender operates.

Some borrowers love to use hard money lenders on all real estate deals. Borrowers of hard money loans qualify based on the value of their property more so than the quality of their credit history. However, there is a market out there that hard money lenders cannot fund. So make sure you do your research right before taking on a hard money loans.


Factors to Consider Before Getting a Hard Money Lender

While the hard money lender cannot be compared to a bank, you can place certain measures into place in order to ensure you don’t get duped when getting a loan from them. This is a non-traditional loan and it comes in handy when you need to get private loans. For the purpose of ensuring you make the right choices, it is advisable to consider the following important factors.

    • Experience: Find out the duration the lender has been in the market and the number of successful deals they have closed. In this case, you can look at their expertise and the type of customer feedback they have before making your decision.
    • Industry connections: This refers to the investors and lenders they work for. In this case, it is important to ensure that they are well connected and they have the purpose and tools needed to ensure you access your cash without any difficulty. Keep in mind that those with many connections are able to get ready cash fast and this ensures that the job is completed within a short duration.
    • You need to look at your local estate market. If it is performing poorly, there is the possibility that the rate for the cash is going to be higher as well. Always take time to carry out thorough research your local market keenly in order to ensure you make a decision that is in your best interest.
    • References: In this case, it is imperative to ensure they are competent and what better way to confirm this than talking to people who have used the services before you. They will give you an account of personal experience and this will ensure that you get a lender that offers a deal that works well for your needs. If need be, make sure that you carry extensive and thorough research. Do not stop until you are certain that the choice you get is in your best interest.
  • Prepayment penalties: Before getting private loans, it is important to ensure you get a clear picture of the prepayment penalties. Note that this depending on the lender selected, you might be expected to pay this or not. Prepayment penalty refers to the fee you incur incase you don’t make your payment as agreed. For the purpose of ensuring that you are not subjected to any unpleasant surprises, it is important to confirm this amount with the hard money lender. In most cases, it is advisable to settle with one that does not charge such fees.

Always, before seeking to use these services, it is also advisable to ask them if they have state licenses. Every lender is supposed to have one and if this is not the case, then don’t use the services.


Don’t Get Burned By Commercial Hard Money Lenders!

There might come a time in your investing career that you will need to use commercial hard money lenders. Hard money is used when you need to get quick short-term financing. The rates are usually high and the LTV’s very low (to account for the risk involved in these types of loans). These loans are usually tied directly to the property value (however, lenders also look at the borrower’s credit history, personal financial statement, etc–they use this information on determine your rates and allowable LTV). Some people are scared to even think about getting a hard money loan because the rates are so high– but that shouldn’t stop you if the numbers make sense.

The commercial hard money industry is full of reputable lenders as well as sharks. And it would surprise you to find out who the sharks are! They are the ones with all of the slick advertising that promise you everything but never deliver (but they do manage to keep a nice chunk of your money!).

I have heard a lot of horror stories, from not closing on time to losing hundreds of thousands of dollars.

So how do you avoid being a casualty on this battlefield of commercial hard money lenders? Read on and I will share with you tips from past clients as well as my own personal experience.

PITFALL #1 – Not Using a Commercial Mortgage Broker

So you think you will save yourself some money by not using a commercial mortgage broker, but trust me, you will spend more in the long run. The broker is the expert you need to rely on. Not only will they know different sources of funding but they will also know which ones to avoid. Brokers also have a fiduciary responsibility to act in your best interest, so they should understand the process and know the lender. Typically, brokers will charge you 2 points to broker the loan.

PITFALL #2 – Not Having a Lawyer Review Your Documents

A Broker has a fiduciary responsibility to act in your best interest but they are not an attorney. Before you sign any contracts and pay any money to the lender, have your attorney review the documents. Most lawyers will review contracts for a small fee (depending on how large the contract is) and it will be worth your investment. Not only do you want your lawyer to review the documents, but also have them explain them to you in “plain english”.

PITFALL #3 – Paying Too Much Money Up Front

You can expect to pay some initial up front money (for appraisals or other inspections), but it shouldn’t be an exorbitant amount. Also, you need to know if the money is refundable or not and under what circumstances. Do you have to pay for site visits (other than appraisal)? Is any part of that refunded if the loan doesn’t close? This is usually where most of the heartache comes from…you have given them a large sum of money and it turns out that it isn’t refundable!

PITFALL #4 – Not Performing a Background Check On the Lender

Once you know who the commercial hard money lender is (if you’re using a broker, they won’t tell you that until you have signed a fee agreement) check the state that they are licensed in for any complaints or lawsuits. Most people do this step after they’ve lost their money and they are preparing a lawsuit! I suggest you do it before any money changes hands.

Using commercial hard money can be a beneficial solution to your investment strategy, but you want to make sure that you know what you’re getting yourself into, so that you don’t get burned.


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