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Commercial Loans Under $1 MM are Tough to Find — Is Private Money the Only Option in this Market?
18 Jan 2010 | 5 Comments | posted by Corey Curwick Dutton | in Private Money
You aren’t the only one who is having a tough time financing commercial property under $1 MM. Banks just aren’t lending right now on the following types of property:
· Mixed-Use Commercial under $1 MM
· Multi-Family Commercial under $500K
· Retail Commercial under $500K
Even if the properties are income-producing, qualified borrowers just can’t get their banks to do refinances much less any cash-out.
Private money may be the only option if you or your clients have an income-producing property that you are seeking to purchase, refinance, or need cash out.
Why? Private lenders are very active in this space and are looking for mixed-use commercial, multi-family, retail strip commercial under $1 MM. Banks are not.
Any further comments on this discussion? I’d love to hear from the anyone who may have had recent experience with this property type in the current lending environment. Please share.
New Private Lender Loan Programs for 2010
27 Dec 2009 | 2 Comments | posted by Corey Curwick Dutton | in Private Money
Many of my private lenders have already unleashed their loan programs for 2010. Many of these loan programs have more favorable interest rates than some programs we’ve been seeing in 2009. And with all types of real estate being offered at 35 to 55 percent of its value, hard money even turns out to be cheaper than getting a partner involved in the investment, or worse yet, in a tug of war with a family member.
I was surprised to learn about a new distressed construction program and a stated income loan program for top-tier professionals. Although not offering the lowest interest rates, these programs are evidence that investor confidence is improving in these harder to service areas. Private money and hard money lenders are more liquid and looking for new loan options.
See below for some of the loan programs that my private lenders are making available in 2010.
As we head into 2010, any thoughts on where the values of real estate are going? Can values only go up from here, or do certain real estate sectors still have further to go in some regions? Please contribute to this discussion. I’d love to hear your thoughts on investing and lending in 2010.
Posted by Corey Curwick on December 25, 2009
2010 Private Loan Programs:
Eastern and Midwestern States:
OH, NY, MI, NC, TN, PA, IN, IL, MO, KS
Property Type – 1-4 family residential
Loan Amount – $50,000 to $500,000
LTV – Typically Maximum of 70% of as completed value. Will consider slightly higher for strong client.
Interest Rate – Typically 9.5%
Points – 5% – 6%
$400 documentation fee
Credit Score – Minimum Middle Score of 680
Require Spousal Guarantees
***In Michigan, 700 mid credit score, minimum cash deposit of 10%, and maximum LTV of 65%.
CA, AZ, NV, OR:
Property Type SFR’s, apartments, income producing
Loan Amount (sweet spot) 50k-500k and will look at deals up to 2M
LTV (as it relates to credit score) 60% max.
Interest rate and points as per loan term 12.5%, 4.5-6 points, 1-2 year term, no prepayment penalty.
Western States:
Residential and Commercial: OR, WA, CA, ID, NV, UT
Commercial only: CO, AK, HI
CONSTRUCTION FINANCING:
We typically require the land to be free and clear. (650 minimum FICO) Max loan amount is around $2m. Loan amounts between $500,000 and $2,500,000. Typically we’ll do the construction loan but will want to be taken out through immediate sale of the property or a refinance by another lender.
COMMERCIAL & RESIDENTIAL REAL ESTATE:
- Residential Loan Amounts up to $1 MM
- Commercial Loan Amounts up to $2 MM.
- Commercial: Well-located, multi-tenant, income-producing properties including: apartments, shopping centers, retail strip centers, mixed use, industrial, and office. (No single tenant commercial or owner user properties such as restaurants, non-flagged motels and hotels, and convalescent/skilled nursing facilities).
- LTV ratios will normally be in the 50 to 65% range.
- 55% or less LTV, 60 to 65% or less LTC (Total costs include: land cost, soft and hard costs, construction interest, points and closing costs).
- 9.99% to 11.99% interest only, 4.25 to 4.75 points to us
- Loan Terms up to 5 years
Utah ONLY:
Loan Program #1: Residential properties only.
- Short-term 1 to 2 unit residential, non-owner investment property.
- High Credit Score = Highest LTV ( 720+ Score = 80% to 85% LTV ).
- Max Loan Amount $400,000.
- No appraisal required.
- Loan Terms: 30 to 90 days.
- Interest rates from 12% interest only.
Loan Program #2: Residential and Commercial
- Loan Amounts up to $400,000.
- Up to 60% LTV.
- Loan Terms up to 7 years.
- Interest rate 14%.
California Only:
- Hard Money 50% or less LTV on NOO 1 – 4 units and commercial income properties.
- 9.95%, I/O, 12 – 36 month terms, 4 – 5 pts, 0 – 12 month prepay.
- Purchase / Rate & Term Refinances/ Cash-Out Refinances
- Conventional Fannie Mae 1 – 4 unit rehabs for owner-occ OR investors. Finances the lesser of 75% loan-to-cost or loan-to-after-repaired value (for purchases. refinances are AIV). Low ARM and fixed rates.
- Commercial income property loans — apartments, office, retail, mixed-use, storage. Institutional 1sts, or private 1sts and 2nds — doing lots of equity loans as 2nds these days.
- Direct Lender Fannie Mae, conforming loans: We are a direct lender in CA for conforming, conventional, A-paper deals. Our rates are competitive, but aren’t geared towards low-cost at this point. Where we excel is in fast closings, since we underwrite in-house, and we control the appraisers who are in our AMC, limiting appraisal problems inherent with everyone else. Therefore, we’re a good source for deals that need fast closings at competitive rates, but not no-cost lending.
- USDA Rural 100% financing: SFRs in 14 northern counties in CA qualify completely for the program. Other designated “spots” in other counties available, but they’re rare in L.A., Orange, San Diego, Riverside, and San Bernardino, as well as the 7-county area around San Fran. The program provide 100% financing for qualified buyers of an owner-occ SFR who meet HUD median income guidelines.
- NO mortgage insurance. Good rates, though slightly higher than traditional FHA or conventional.
- Residential Lot Loans: 25% down on improved, residential-zoned lots for full-doc, A-paper borrowers, purchase and R/T refi only — no cash-out. Rates in the upper-5.00% range, 30-yr term with 3-year balloon, 1.25 – 3 points.
- Super Jumbo Financing:
- 80% LTV to $2MM, 40-yr amortization + interest-only — 3/1, 5/1, 7/1, 10/1, 15+25 ARMs only
- 90% LTV to $1.1MM with 10% seller-carry 2nd — same terms as above
- STATED INCOME — 65% LTV, 12-24 mos PITI reserves, 700+ FICO, must create depository banking relationship with lender, self-employed or top-tier professionals only. Purchase preferred but will consider rate/term and cash-out. This is a really, really nichey product with lots of requirements.
- 15 and 30-year fixed to $2MM. 75% max LTV to $900k, reduced LTV thereafter.
CA Only:
Loan Amounts $200-$400K
Loan types- Non-owner occupied residential, commercial properties, and rehabs.
LTV as high as 75-80%.
Interest rate ranges between 10.99-13%
Are Private Money Interest Rates Starting to Trend Downward?
10 Jul 2009 | No Comments | posted by Corey Curwick Dutton | in Private Money
Twenty years ago, private money or hard money interest rates were well into the 35% range–the same rates that, these days, only credit card companies have been able to get away with. Well, until now.
Even with the credit crunch, the highest interest rates in hard money have typically loomed between 16 and 25 percent for the last year and a half.
But it seems that something good is happening in private money. The trend of interest rates in private money is heading downward. Even within the last few months, I’ve seen rates go down significantly.
For example, take a commercial building in Philadelphia. Certainly not the hottest market for private money lenders. And, when a building needs additional construction monies, its even harder to find competitive interest rates.
A few months ago, I queried this loan to all of my commercial hard money lenders. All but one decided to pass. The lender that did issue a terms sheet, quoted the borrower at 18% interest and 20 points. Ouch!
The good ending to the Philadelphia property story is, I was recently able to get a terms sheet for 11% and 8 points. Even three months ago, these terms were nearly impossible to get for a loan request with these characteristics.
So, I’m optimistic about private money interest rates starting to trend downward. Any thoughts? Please leave your comments or thoughts below.
Your Private Money Broker Is Your Attorney
6 Apr 2009 | 3 Comments | posted by Corey Curwick Dutton | in Private Money
Many people cannot underestimate the value of a qualified broker when it comes to private or hard money loan requests. I always use the comparison between a good broker and a good attorney. The analogy is presenting a deal for funding to the lender compared with presenting a case to the judge and jury in the courtroom. If you were being tried for a felony and possibly facing jail time, would you go before the court and present your case without a good attorney?
I can’t tell you how many stories I’ve heard where a borrower tried to go before the lender (the judge & the jury) by him or herself and was denied the loan (found guilty). This being said, we have also funded many a loan (court case) by presenting it properly to our lender (the court).
Many times when borrowers are seeking private or hard money they are in a delicate situation. This is where a good broker plays a crucial role in getting a deal funded. A good broker understands all of the details of the loan request, including the strengths and weaknesses, and is able to present this to the lender in the best way possible.
A story that happened recently is about a client that needed a construction loan for a halfway completed condominium project. As his broker, we determined that private/hard money was his only alternative for completing the condo project. We queried his loan request to all of our lenders and luckily we were able to find one lender that was willing to stick his neck out and help our borrower finish his project.
Our lender gave us the initial terms sheet and our client tentatively agreed to the terms set forth by signing off on them. However, without consulting us first, the client decided to call the lender himself to see if he could negotiate the interest rate down. BIG MISTAKE.
In the course of the short phone call with our client, the lender began asking him questions about the project that were “delicate” questions, to say the least. These were certainly questions that we as the broker should have answered for our client. Back to the analogy of the court case, our lender heard some things that gave him a bad taste in his mouth. Several hours later, the lender called me back and said he was withdrawing the initial terms and had decided NOT to do the deal. GUILTY!
Because our client decided to go straight to the lender without our representation, he lost the terms that were on the table and as of today, his project is still sitting in limbo. This is a valuable lesson for all of us. Pick a good broker that’s been in the private/hard money lending game for a long time. This is your best chance for getting your deal funded (or winning your case!).
Posted by Corey Curwick on April 6, 2009
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