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  • Randy Rodenhouse

Private lending basics - Part 2

WHAT ARE THE MAIN DOCUMENTS REQUIRED FOR PRIVATE LENDING?

  • Note - Promissory note spelling out the terms of the loan such as interest rate, length of loan, amount borrowed, etc.

  • Mortgage/Deed Of Trust - Security instrument which allows the lender to foreclose and get the property back if borrower does not pay as agreed.

  • Title Insurance - Protects the lender from financial loss sustained from defects in a title to a property.

  • Hazard Insurance - need to name the lender as mortgagee of loss payee on the hazard insurance policy in case of loss.

OTHER REQUIREMENTS?

  • Personal guarantee is required by some private lenders as well.

  • Appraisal is typically required for loans.

  • Demonstrate and show other successful projects.

  • Purchase asset in a entity and not personally.

  • Minimum FICO score (usually >600).

TYPICAL LOAN PARAMETERS (every lender is different)?

  • LTV (Loan-To-Value) to be at or below 70%. This is to reduce the risk in case of a downturn in property values and to insure equity.

  • For Fix and Flip many lenders will also require that the loan-to-cost be 90% or less.

  • Some require points or origination fees which ranges dramatically from 0-5 points. (1 point is 1% of the loan).

  • Interest rates: 8-16%.

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