Steps To Loan Are Equally Important

Today, you will find a range of bank loans and finances to choose from. However, there are a couple of loans that are yet to be heard of, but are important and can lend immense value to your overall portfolio. So now is the time to read about such exotic loan types that are not so much popular; but when it comes to significance, their importance is undeniable.

Portfolio loans

Portfolio loans are actually designed to get the loan applications of borrowers approved whenever they fail to complete the eligibility criteria for any other, more normal financing product. Such mortgage loans are largely funded by credit unions, small-sized banks, and other mid-sized commercial mortgage lenders. The reason why this loan type is found in credit unions and local banks is because they are way more home grown than any of the common mega lenders. Further, these lenders want to play a part in writing the growth story of their local economy. Now, let us read up on the factors why such loan types can be considered while you purchase your next residential or commercial real estate.

Why portfolio loans must be included in your investment portfolio?

The key reason why a portfolio loan must be opted is whenever you face recent credit issues. Many a time, a portfolio loan is opted whenever borrowers have wrecked their respective credit histories; perhaps their credit was destroyed because of either a nasty divorce or a business deal gone bad. This will, indeed, have a massive impact on the borrower’s capacity to earn for at least the next 12 months. And many times, this phenomenon forces foreclosure or possibly bankruptcy. So, in short, this loan type is needed whenever the borrower is going through a rough patch.

Blanket loans

Put simply, a blanket loan is a type of mortgage financing that will make the transactional phase becomes easier and quicker. Here, just a single mortgage will cover or secure more than a single parcel of property. They are, by and large, commonly used by commercial land developers and investors; however, in a couple of cases, they may even be used for residential transactions-in this case, the loan will act as a bridge between the new and the old mortgage.

Why should you opt for a blanket loan?

Blanket loans will easily eliminate any need for refinancing whenever the old home is sold. During such a period, whenever the portion that covers the old home is paid, the blanket loan will simply become a standardized mortgage that covers the new home or homes.

Cross-collateral loans

A cross-collateral mortgage is a loan that will use multiple (or at least two) properties as the collateral before the amount is lent to the borrower. This mortgage will be cross-collateralized against a range of properties and will provide additional security, which, finally, compels lenders to offer the loan. By and large, this loan form is offered by private banks as well as portfolio lenders.

Why cross-collateral loans are preferred?

There are two key benefits: The first one is that this loan is beneficial for lenders as they will get additional security. The second benefit is for the lender; now, as the lender brings an additional value (in the form of multiple properties) to the table, the borrower will have a lower LTV – and a lower LTV implies a lower price charged on the loan.

So here are the top three of the most unconventional residential and commercial real estate financing options that must be chosen by investors who want to bring diversity into their portfolios.

 

What You Need To Know About Lenders Mortgage Insurance

LMI is an insurance policy that protects the bank/lender where you have your home loan. Should you default on your mortgage the bank will repossess your home and sell it as quickly as possible, usually at a discounted price. These funds are used to repay your debit however if there is a shortfall the LMI will cover the bank/lender.

For example, if you purchase a property for $650 000.00 and take out a 90% loan you will be charged LMI on this loan, making the total loan amount approximately $597 000.00. Hypothetically two years on you still owe $590 000.00, the property has gone down in price and you have defaulted on your loan. In this case the property will be sold as quickly as possible for as much as the bank can get, perhaps $500 000.00 meaning the bank is set to lose $90 000.00. This is where the LMI policy you paid for will repay the remaining debit so the bank/lender has no loss.

This is all hypothetical of course however that is what most insurance policies are based around, a cover just in case the worst happens even though we all hope it never does.

Depending on how much deposit you have managed to save you may need to pay LMI on your loan. If you have saved up a 20% deposit plus stamp duty, or you have a property with available security to the same value then you won’t need any LMI as you are borrowing 80% or less of the value of the property.

Anything over 80% will incur an LMI charge and unfortunately the cost depends on the amount you are borrowing and the value of the property. There are calculators available or you can contact your Lender for an estimate.

Rest assure, LMI seems like a bad thing but without it so many people would be unable to get into the property market and whilst it is an added expense, the fee is charged to your loan after funding so it’s not more cash you need to come up with.

LMI is a great help to anyone who hasn’t saved the 20% deposit to get into their home however there is another option worth considering and that is using a security guarantor. This is when a guarantor can use cash or property as security to avoid paying any LMI.

 

Tips To Examine The Loans

There are or have been instances where your loan portfolio has been criticized mildly or severely by bank or credit union regulators and all your efforts in turning around quality of the loan portfolio seem to be futile. This can be frustrating especially if you spent a lot of money on hiring ‘experienced’ staff and retraining them. If you are at this stage, and you don’t want to be fired or have your institution shut doors, what you need to bear in mind is that there is still a way out of the predicament. You can still cleanup your loan portfolio and lay the foundation for better quality loans. One thing that you can do is to get the services of a professional loan underwriting and review services provider. The services of the professional will come at a fee, but the fee that you will pay will be nothing compared to the overall benefits that you will reap. But before you dive into hiring a professional, conduct some initial assessment of the professional first. Here are some of the things you ought to consider, on how you can find the best loan underwriting professional for your needs.

  • The background and the quality of the past work of the professional loan underwriter.
  • The commitment of the professional in following internal loan policies, the examiner’s guidelines and industry practices.
  • The breath of industry research data maintained by the professional loan underwriter.
  • The length and appropriateness of experience of the firm in the banking industry.
  • The loan underwriting techniques and discipline used by the professional.
  • The benefits that you will get from a professional as opposed to an in-house credit or loan officer

Some of the benefits that come with the service are as follows:

  • Good preparedness for examiners, thus avoiding criticism
  • Early problem recognition and opportunity for remedial action, thus avoiding revenue losses.
  • Excellent foundation for prudent loan underwriting
  • High return on low investment

When regulators review individual loans, they evaluate People, Purpose, Protection, Payment, Problem and Prospects. Accordingly, a competent professional loan reviewer should do the same by assessing individual loans, including repayment risks, analyzing financial statements for risk and debt service capacity, evaluating risk grades and their accuracy, reviewing collateral/security perfection and calculating Loan to Value ratios, analyzing guarantors’ credit history and Personal Financial Statements, comparing actual financial performance with projections, identifying lapses in documentation, reviewing compliance with lending procedures and policies and recommending practices and procedures to address findings.

 

Tips For Small Business Funding

When a small business needs funding, where does it turn? There are plenty of ways for a small business to gain funding, each with their own unique advantages. While one may be good for a particular business, another may be more suitable to the next business. It all depends on the preferences of the small business and whether or not it will get approved. For small business owners looking to move up in the world, check out this list of sources to gain capital fast.

  1. Banks

This is probably the first thing anyone thinks of when it comes to loans. After all, lending money to clients and collecting the interest is one of the ways banks make their profits. It’s usually pretty easy to get approved with a good credit score. However, as it was just stated, banks make money off interest. Therefore, the interest rates on traditional bank loans tend to be a little higher than from other sources, although it varies with the market rate and the credit rating of the applicant.

  1. Merchant Cash Advance

Although similar to a bank loan, a merchant cash advance is usually safer and generates less interest. First of all, getting approved with a company like Water Street Capital is a much easier process than via a bank. As long as business grosses an average of $10,000 a month it can start applying confidently for up to $500,000! The application can be submitted online and usually takes about 3 business days to receive the money, however, the business can use the money for an array of different needs such and advertising, payroll, expansions, upgrades and more!

The way the client pays back the loan is also fundamentally different and makes this option one of the best for small businesses. The business agrees with the lender to repay the loan with a small percentage of their sales every month (like taxes). The amount is automatically taken out every month and varies with the success of the business. If it has a slow month, it pays less and if it finds itself enjoy more profits, it will pay off the debt faster!

  1. Crowdfunding

While it can’t really be labeled a “reliable” source, crowdfunding has skyrocketed in popularity in the past few years with sites such as Indiegogo and GoFundMe. It can be a great way to gain investors for a small business looking to expand. If the product is popular enough or unique enough, it will surely gain backers. However, it can’t always be counted on to come through. If the business doesn’t receive enough investments to reach its minimum goal, it receives nothing. It’s not the source to turn to for large financial requests, but it has proven to be effective in the past, sometimes with businesses even generating millions of dollars!