Loan Scenarios

When you are presented with that challenging loan scenario, turn to Finance Factors for guidance and assistance with your questions. This section discusses different loan scenarios and the possible solutions Finance Factors can provide to help create a workable loan.

Multiple-collateral Loans

Non-Conforming Properties

Short-term Financing

Difference between a multiple-collateral loan and a bridge loan

Question:
What is the difference between a multiple-collateral loan and a bridge loan?

Answer:
A bridge loan is a single loan using equity in a property listed for sale to buy a replacement property. A buyer will normally get a bridge loan when they don’t want to submit a purchase offer containing a sales contingency.

A multiple-collateral loan is also a single loan securing more than one property, but the buyer is not selling any of the properties being secured by the loan. The buyer is merely using the equity in his or her properties in lieu of cash to facilitate a purchase.

Situations for a multiple-collateral loan

Question:
What situations would you suggest for a multiple-collateral loan?

Answer:

  • Properties in Poor Condition including tear-down condition properties
    • Similar to a vacant lot purchase, when the condition of the existing home is too
      poor to give it any value in the appraisal, we can do a land loan instead of a
      long-term loan
  • Multi-million dollar purchases over $2 million
    • Using more than one property as collateral can allow a high net worth client to
      leverage their equity in their real estate holdings instead of liquidating stocks
      or other liquid assets.
  • Investor purchases
    • Investors looking to grow their real estate holdings can cross-collateralize
      different types of properties
  • Purchasing with no cash down payment
    • Use the equity from one or more existing properties to purchase a new property
      and eliminate the need to have a cash down payment.

Purchasing Property with Substantial Deferred Maintenance

Question:
I have a client that wants to purchase a property with substantial deferred maintenance with the intention of repairing it and then selling it. What options can you offer?

Answer:
There are two key items to address with this kind of situation – LTV and cash to repair.

In determining loan amount and LTV, we will normally appraise the property “as is” and ask the appraiser to provide a “cost to cure” to bring the property up to normal condition. In cases where the repairs are so substantial and the condition of the property is so bad that the appraiser cannot provide a cost to cure, we will normally look to base our LTV and loan amount off of the site value of the property, and give no consideration to the value of existing improvements. Call us with your specific situation and we can give you a good idea of what LTV we can consider.

The second item we look at is whether the borrower has sufficient liquid assets to complete the repairs to the property. We compare any estimates or bids that the borrower may have to what the appraiser estimates repair costs to be. We want to have a good comfort level that the borrower will be able to successfully complete the repairs to the property after acquisition.

Lastly, we have no prepayment penalties and have no prohibition against the borrower paying off our loan early should they sell the property.

Non-conforming 2-unit property

Question:
My customer wants to purchase a 2-story single family dwelling in Agat. There is no interior access between the first and second floor and there is a second non-legal kitchen. How do you value a property like this and can you even lend on it? Can you consider rent from one of the units if the owner lives in the other?

Answer:
We would ask the appraiser to appraise the property "as is" and to identify "cost to cure" for the deficiencies (no interior access and second kitchen). We would lend the property “as is” based on the lower of appraisal or purchase price, but we would probably reduce LTV to 70% or less, depending on the overall condition of the property and the strength of the borrowers. We would probably use existing rental contracts and/or rental ads (such as Craigslist) to determine the market rent for one or both units. Finance Factors takes 75% of the gross rent and nets it out against our loan payment when determining the DTI ratio, even when one unit is owner-occupied and the other unit is rented.

Legal non-conforming 2-unit property

Question:
I have a client that wants to purchase a legal non-conforming 2-unit property. When the dwellings were originally built, the zoning on the lot allowed for two legal units on the property. Since that time the zoning has changed and now only one dwelling is permitted on the lot. So if the buildings burned down, only one unit could be rebuilt. How would Finance Factors look at something like this?

Answer:
We generally treat legal non-conforming the same as any other property. So in this case we would appraise the property giving full value to both living units. We would require hazard insurance on both units and would also be able to consider the rent from one or both units, whatever the case may be. If there was a fire and one dwelling was destroyed and could not be rebuilt, we would probably require that the insurance proceeds go toward paying down our Finance Factors loan balance. If both units burned down and only one could be rebuilt, we would work with the homeowner to ensure that we were at an acceptable LTV based on the future value of the property, and any excess funds over and above what is necessary to rebuild be applied against the loan balance.

Specialty property listed for sale

Question:
I have a customer who is a contractor/developer that built a high-end home for cash on a large parcel with awesome views. The customer does not occupy the property. Property is free and clear and the appraised value is $1 million and the home is listed for sale and is being actively marketed. The customer wants to borrow $200,000 to do additional landscaping, including adding a pool and some water features, to make the property more appealing and facilitate a higher sales price. The customer can’t show much in the way of income since he has been working on this project for the past 2 years. What can Finance Factors offer?

Answer:
Since this is an investment property, Finance Factors can offer the customer a 12-month short term loan to borrow the money for the landscaping work on the property plus give the customer 12 months’ of funds secured in a Finance Factors savings account to use for the loan payments for the duration of the loan. We would want a copy of the listing agreement and a marketing plan from the borrower’s Realtor since we are relying on the sale of the property to ultimately pay us off. We would also want to make sure that the customer filed a Notice of Completion on the construction to ensure that there are no potential mechanic’s lien problems. If a Notice of Completion was not filed, we would want to determine if the Certificate of Occupancy was issued by the Government of Guam and to have the contractor sign an indemnity agreement and then we would work with the title company to see if we can get a mechanic’s lien endorsement to protect ourselves against any possible mechanic liens on the property. We would base pricing off of our bridge loan program and would not exceed 65% LTV, which is not a problem in this case.

*Important Notice:The loan scenarios described above are provided for informational purposes only. The making of any loan and the terms thereof are subject to Finance Factors’ underwriting approval.