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Different Types of Loans
Investor Loan
A real estate investment loan is a loan provided for the purchase or refinance a property for the purpose of renovating to sell or for a rental property. The property can be a residential or commercial property.
Commercial Loan
A commercial loan is a loan used by an entity or corporation to purchase or refinance a business, equipment or commercial real estate such as an office building, warehouse, apartment complex, airplane and equipment.
Residential Mortgages
A residential mortgage, also known as a home loan, is a loan provided to help individuals or families purchase or refinance a residential property for use as a primary residence or vacation home.
Jump in and check out criteria for lending
Commercial Guidelines
Prime Commercial
Commercial - SBA Loans
Common commercial loan guidelines vary depending on the business and the specific type of commercial loan. However, here are some general guidelines that lenders often consider:
1. Creditworthiness: Our lenders will assess the credit history and credit scores of the borrower and any guarantors. A strong credit profile increases the likelihood of loan approval.
2. Financial Statements: commercial loans typically require financial statements, including balance sheets, income statements, and cash flow statements, to evaluate the borrower's financial stability and ability to repay the loan.
3. Collateral: Commercial loans often require collateral, such as real estate, equipment, or inventory, to secure the loan. The value and quality of the collateral will be assessed to determine the loan amount.
4. Loan-to-Value (LTV) Ratio: The underwriter will consider the LTV ratio, which is the loan amount divided by the appraised value of the collateral. Lower LTV ratios are generally preferred as they indicate less risk for the lender.
5. Debt Service Coverage Ratio (DSCR): It is common practice to evaluate the DSCR, which measures the borrower's ability to generate enough cash flow to cover the loan payments. A higher DSCR is typically required for loan approval.
6. Business Plan: For start-ups or expansion projects, the business may be required to provide a comprehensive business plan outlining the purpose of the loan, financial projections, market analysis, and management expertise.
7. Industry and Property Type: our many different lenders and banks have preferences or restrictions regarding specific industries or property types, as some industries carry higher risks than others.
8. Personal Guarantees: In many cases, lenders may require personal guarantees from business owners or major stakeholders, making them personally liable for the loan repayment if the business defaults.
It's important to note that these guidelines are not exhaustive, and each lender may have additional specific requirements and criteria. Consulting with multiple lenders and seeking professional advice can help borrowers understand the specific guidelines and options available for their commercial loan needs.
A prime commercial loan refers to a loan that is offered to a borrower with a high credit rating or creditworthiness. It is typically provided by banks or financial institutions to established businesses with a solid financial track record and a low level of risk. Here are some key features of prime commercial loans:
1. Borrower Qualifications: Prime commercial loans are generally offered to businesses with a strong credit profile, stable cash flow, and a positive financial history. Lenders evaluate factors such as the borrower's credit score, financial statements, business plan, industry outlook, and collateral.
2. Interest Rates: Prime commercial loans often come with more favorable interest rates. Borrowers with a high credit rating are considered lower-risk, so lenders offer lower interest rates to incentivize borrowing.
3. Loan Terms: Prime commercial loans typically have favorable loan terms, such as longer repayment periods and lower down payment requirements. Longer terms allow businesses to spread out loan payments over a more extended period, reducing monthly financial strain.
4. Loan Amounts: Prime commercial loans may offer higher loan amounts based on the borrower's financial strength and the lender's assessment of the business's ability to repay the loan.
5. Collateral: Depending on the loan amount and terms, lenders may require collateral to secure the loan. Collateral can be business assets, real estate, or other valuable property. The collateral provides a form of security for the lender in case of default.
6. Prepayment Penalties: Some prime commercial loans may have prepayment penalties if the borrower decides to pay off the loan before the agreed-upon term. It's important to review the loan terms and understand any associated penalties before signing the loan agreement.
Prime commercial loans are considered more favorable and advantageous for borrowers with strong credit profiles and established businesses. They offer competitive interest rates, flexible loan terms, and higher loan amounts. However, the qualification requirements for prime commercial loans are more stringent compared to loans with higher risk profiles. It's essential for borrowers to maintain a good credit history, prepare accurate financial statements, and provide comprehensive documentation to increase their chances of obtaining a prime commercial loan.
SBA loans are financing options provided by the U.S. Small Business Administration to help small businesses access capital for various purposes. The SBA guarantees a portion of the loan provided by participating lenders. Here's how SBA loans generally work:
1. To qualify for an SBA loan, a business must meet the SBA's size standards, be for-profit, operate in the United States, and demonstrate the ability to repay the loan. Eligibility criteria may vary depending on the specific SBA loan program.
2. The SBA offers several loan programs, including 7(a) loan program, which provides funding for various business purposes, such as working capital, equipment purchase, real estate acquisition, or business acquisition. Other programs include the CDC/504 loan program for long-term fixed assets and the microloan program for small loans up to $50,000.
3. Lender Selection: We work with business owners to select the appropriate participating lender and prepare the documents needed, to apply for an SBA loan. The SBA guarantee helps mitigate the lender's risk.
4. SBA Guarantee: The lender works with the SBA to obtain a loan guarantee. The SBA guarantees a portion of the loan, typically ranging from 50% to 85% depending on the program.
5. SBA loans have longer repayment terms compared to conventional loans, which can help small businesses manage their cash flow. The specific terms, interest rates, and repayment periods depend on the loan program, the amount borrowed, and the borrower's creditworthiness. Repayment is typically made in monthly installments.
6. The lender may require collateral to secure the loan. Additionally, business owners may be required to provide a personal guarantee, making them personally liable for loan repayment in case of default.
7. Loan Use and Restrictions: SBA loans support various business purposes, such as working capital, equipment, real estate, or acquisitions. However, there may be certain restrictions on how the funds can be used, and borrowers must adhere to the loan agreement and SBA guidelines.
SBA loans provide access to financing that might otherwise be challenging to obtain. They offer longer terms, lower down payments, and more favorable terms compared to conventional loans. However, the application process and underwriting for SBA loans can be more rigorous, and it's important for business owners to carefully review the terms, requirements, and obligations associated with these loans.
Construction Loans
Hard Money Loans
Rental Property Loans
Construction loans are short-term loans used to finance the cost of building or renovating a property. They are typically used by developers, builders, and homebuyers to pay for the materials and labor required to construct a new building or remodel an existing one.
The loan is typically disbursed in stages as the construction progresses, and the lender will often require periodic inspections to ensure that the construction is proceeding according to plan. Once the construction is completed and the property is deemed habitable, the loan is typically refinanced into a permanent mortgage.
Construction loans typically have higher interest rates and fees than a traditional mortgage because they are riskier for the lender. The borrower must also typically provide a down payment and have a good credit score to be approved for a construction loan.
In some cases, the lender may also require the borrower to provide a personal guarantee, which means that the borrower is personally responsible for repaying the loan if the construction project does not go as planned.
It's important to carefully consider the terms and conditions of a construction loan and to have a well-planned budget and timeline for the construction project to ensure that the loan can be repaid on time and without any issues.
A hard money loan is a type of short-term loan secured by real property, usually used for fix-and-flip projects, real estate investment, and property development.
These loans are provided by private investors or lending companies and are typically funded much faster than a traditional bank loan. The loan amount is usually based on the property's after repair value (ARV), and the loan term is typically less than a year.
The interest rate on a hard money loan is usually higher than a conventional loan, and the lender may also charge additional fees. The loan is secured by the property being purchased or used as collateral, and the lender can foreclose on the property if the borrower defaults.
Hard money loans are often used by real estate investors and developers who need to acquire or renovate a property quickly and don't have time to wait for a traditional loan. However, they can be more expensive and have more risk than a conventional loan, so it's important to carefully consider the costs and risks before taking out a hard money loan.
Rental property loans are specifically designed to finance the purchase or refinancing of properties that will be rented our.
1. Rental property loans are used to either purchase or refiannce an investment property. The loan amount is typically based on the property's value or purchase price.
2. Lenders usually require a higher down payment for rental property loans compared to primary residence loans. The down payment amount is often in the range of 15% to 25% of the property's purchase price. A larger down payment helps mitigate the risk for the lender.
3. Lenders take the potential rental income from the property into account when evaluating the loan. They may require rental income documentation, such as lease agreements or rental market analysis, to assess the property's income-generating potential.
4. Lenders evaluate the property's cash flow to ensure it can generate enough rental income to cover expenses like mortgage payments, property taxes, insurance, maintenance, and vacancy periods. They may require the borrower to meet certain debt-service coverage ratios (DSCR) to qualify for the loan.
5. Rental property loans typically have slightly higher interest rates compared to primary residence loans. They are typically similar to residential mortgages, with repayment periods of 15 to 30 years.
6. Lenders usually require a property appraisal to help determine the loan amount, as lenders typically finance a percentage of the appraised value.
7. Lenders may require borrowers to have adequate cash reserves and good credit to qualify for rental property loans. The specific requirements vary.
Conventional Home Loans
Government Home Loans
Residential - Non-QM Loans
A conventional mortgage refers to a home loan that is NOT insured or guaranteed by a government agency such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the U.S. Department of Agriculture (USDA). It is the most common type of mortgage offered by private lenders and banks.
Loan Type: Conventional mortgages can be either fixed-rate mortgages or adjustable-rate mortgages (ARMs). A fixed-rate mortgage maintains a consistent interest rate throughout the loan term, while an ARM has an initial fixed-rate period followed by an adjustable rate that fluctuates based on market conditions.
Down Payment: Conventional mortgages typically require a higher down payment compared to government-backed loans. The down payment amount may vary but is often around 5% to 20% of the property's purchase price. However, certain lenders may offer options for lower down payments, such as 3% or even as low as 1%.
Loan Limits: Conventional mortgages have maximum loan limits set by loan type and location. These limits can vary each year and are determined by factors like median home prices in a specific area.
Private Mortgage Insurance (PMI): If the down payment is less than 20% of the property's value, lenders usually require private mortgage insurance. PMI protects the lender in case of default and is an additional cost added to the monthly mortgage payment.
Credit Requirements: Conventional mortgage lenders typically have stricter credit requirements compared to government-backed loans. Borrowers need to have a good credit history, a decent credit score (usually above 620), and a low debt-to-income ratio to qualify for a conventional mortgage.
Appraisal: Lenders require an appraisal of the property to determine its value. The appraisal helps the lender ensure that the loan amount does not exceed the property's worth.
Refinancing: Conventional mortgages can be refinanced to obtain better terms, such as a lower interest rate or different loan term. Refinancing allows borrowers to modify their existing mortgage to suit their changing financial needs.
Government loans, such as FHA (Federal Housing Administration) and VA (Department of Veterans Affairs) loans, are mortgage programs backed by government agencies. These programs aim to provide more accessible financing options for specific groups of borrowers.
FHA Loans:
FHA loans are insured by the Federal Housing Administration, allowing lenders to offer more lenient qualification criteria and lower down payment requirements.
Down Payment: FHA loans typically require a minimum down payment of 3.5% of the property's purchase price.
Mortgage Insurance: FHA loans require both an upfront mortgage insurance premium (MIP) and an annual MIP. The insurance protects the lender against potential defaults.
Credit Requirements: FHA loans are more forgiving in terms of credit scores, often accepting lower scores compared to conventional loans.
Loan Limits: FHA loan limits vary by location and are influenced by the median home prices in the area.
VA Loans:
VA loans are available exclusively to eligible veterans, active-duty service members, and surviving spouses of veterans. They are guaranteed by the Department of Veterans Affairs.
No Down Payment: VA loans offer the benefit of no down payment requirement, making homeownership more accessible for qualified borrowers.
Mortgage Insurance: VA loans do not require private mortgage insurance (PMI). Instead, they charge a one-time funding fee, which can be financed into the loan amount.
Credit Requirements: VA loans typically have more flexible credit requirements and consider the borrower's overall credit profile.
Loan Guaranty: The VA provides a partial guaranty to the lender, reducing their risk and enabling lenders to offer favorable terms to qualified borrowers.
Loan Limits: VA loan limits are determined by the county and can vary based on regional factors.
USDA Loans:
A USDA loan, also known as a USDA Rural Development Loan, is a mortgage program offered by the United States Department of Agriculture. It is designed to promote homeownership in eligible rural and suburban areas and is targeted towards low- to moderate-income borrowers.
FHA, VA and USDA loans aim to assist specific groups of borrowers who may face challenges in obtaining conventional financing. These programs offer more accessible down payment options, flexible credit requirements, and certain benefits to eligible individuals. However, it's important to understand the specific guidelines, eligibility criteria, and potential costs associated with each loan program before deciding which option is most suitable.
A Non-QM (Non-Qualified Mortgage) loan is a type of mortgage that does not meet the qualified mortgage standards set by the Consumer Financial Protection Bureau (CFPB) under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Non-QM loans are offered to borrowers who may not meet the strict requirements of traditional qualified mortgages but still have the ability to repay the loan.
Here are some key characteristics of Non-QM loans:
Alternative Documentation: Non-QM loans often allow borrowers to provide alternative documentation to verify their income, assets, or employment history. This flexibility is helpful for self-employed individuals, those with irregular income sources, or borrowers with complex financial situations.
Expanded Debt-to-Income Ratio: Non-QM loans may accept higher debt-to-income (DTI) ratios compared to qualified mortgages. This allows borrowers with a higher level of debt relative to their income to still qualify for a loan.
Credit Flexibility: Non-QM loans can be more flexible with credit requirements compared to traditional mortgages. They may consider factors beyond just credit scores, such as payment history and overall creditworthiness.
Interest Rates: Non-QM loans typically have higher interest rates compared to qualified mortgages. This is because they carry more risk for the lender due to the borrowers' non-traditional financial situations or credit profiles.
Loan Types: Non-QM loans come in various forms, including interest-only loans, loans with balloon payments, jumbo loans, and loans for investment properties or foreign nationals. These loan types cater to borrowers who may not qualify for conventional loan programs.
Investor Demand: Non-QM loans are often originated by non-bank lenders or private lenders and are primarily intended for the portfolio of those lenders. These loans may not conform to the strict guidelines of government-sponsored enterprises like Fannie Mae or Freddie Mac.
Examples of some popular Non-QM Loans are bank statement loans and 1099 loans. Reserved for self-employed borrowers, these loans use an average of deposits or the average of income reported on form 1099. In these cases, an expense factor is then applied to represent the expense typically incurred by a self-employed borrower.
Non-QM loans provide an alternative financing option for borrowers who may not meet the criteria of traditional qualified mortgages. They cater to individuals with unique financial situations or credit profiles, but they generally come with higher interest rates and additional underwriting scrutiny. It's essential for borrowers considering Non-QM loans to carefully assess their financial circumstances, compare loan terms, and understand the potential risks and costs associated with these non-traditional mortgage products.
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