An investment property mortgage is a loan for non-owner occupied property. There are two main classifications of investment property mortgages. These classifications include: commercial and residential. A commercial property mortgage is for a dwelling that contains 5 or more units and/or is zoned as commercial. A residential investment mortgage is for a dwelling that is one to four units and is zoned residential. Commercial and residential mortgages are two completely different loan types and have significantly different qualification standards. The following is a basic description of each mortgage type.Residential Property Investment LoansResidential property investment mortgages have similar qualification guidelines as standard owner-occupied mortgages. Although, they do have higher down payment and credit score requirements. Below is a summary of the general guidelines for residential investment mortgages.• Credit Score Requirement – The minimum credit score requirement is typically 680 or above for investment mortgages.• Debt to Income Ratio – Typically, the debt ratio limit for an investment mortgage is 40% of the borrower’s verifiable income. Besides W2 income, the borrower’s last 2 years tax returns will be needed to calculate the income that can be used from other rental properties or other sources of income.• Down Payment – Investment property mortgages require at least 15% down, but the down payment requirement increases with lower credit scores and the greater the number of units in the property.• Income – Lenders typically will only use rental income if the borrower has a two-year history of owning rental properties. This is usually documented via the tax returns and schedules.Commercial Property Investment LoansCommercial loans typically have higher rates, greater fees, and shorter terms than residential mortgage. The two most important factors for lenders on this loan type include: a positive cash-flow for the property, and the borrower’s past commercial property management experience. Below is a summary of the general guidelines for residential investment mortgages.• Credit Scores Requirement – The minimum credit score requirement is typically 720 to 740 for a commercial loan.• Down Payment – The minimum down payment for a commercial mortgage is typically 30% or greater. When refinancing, the maximum equity position is usually 70% of the appraised value of the property.• Debt Service Coverage – This is a ratio used by lenders to calculate the property’s ability to generate cash flow. It is a calculation comparing the net operating income minus the mortgage payment and the other debt payments.Other funding sources include: hard money lenders and private loans. Hard money loans are short-term loans from private investors. Private lenders typically use the equity position in the property as the determining factor whether they will approve and fund the loan. There are usually excessive closing costs and fees (points) charged on this type of loan. Private loans are loans that a person would receive from their family or friends. The terms may or may not be similar to hard money loans. Both hard money and private lenders typically only put a lien on the property and do not report payments on the borrower’s credit report.
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Commercial Financing for Special Purpose Business Properties
Funeral homes, assisted living facilities, campgrounds and other special purpose properties represent one of the most difficult commercial loan situations which will be confronted by a business owner. Unique properties are not easily understood by traditional lenders, so the most common solution involves finding a non-traditional lender for funeral home financing as well as commercial financing for other special purpose properties. Such non-traditional lenders will be appropriate for purchase situations as well as refinancing and new construction.KEY REASONS FOR DIFFICULTY IN ARRANGING COMMERCIAL FINANCING FOR SPECIAL PURPOSE PROPERTIES(1) By definition special purpose properties are not similar to other commercial properties. This makes many lenders uncomfortable due to the likely difficulty of finding another owner for a unique commercial property should it be necessary due to a loan default.(2) For funeral homes and many other special purpose commercial properties, most of the business value is represented by non-real estate assets. With traditional commercial lenders that focus on commercial real estate loans, it is almost impossible to get a loan based on the real estate value and the business value. For example, it is not uncommon to have a situation in which the real estate for a funeral home is valued at less than one million dollars while the overall business value is in excess of three million dollars.(3) Because commercial financing is so difficult to arrange for special purpose properties such as funeral homes, assisted living facilities and campgrounds, sellers of such properties are generally willing to provide substantial seller financing to assist the buyer in acquiring the business. However, many traditional lenders do not recognize or accept seller financing as a means of reducing down payment requirements for special purpose properties.(4) Many lenders simply do not understand the business complexities associated with a special purpose property. As a result, it is not uncommon for these lenders to attach onerous and expensive requirements such as business plans and environmental reviews. In most cases such lenders do not even want to make the business loan but will use undesirable loan requirements as a means of appearing to approve a loan when in fact they have disapproved the loan by adding commercial loan terms that they do not expect a commercial borrower to accept.COMMERCIAL LOAN SOLUTIONS FOR SPECIAL PURPOSE PROPERTIES For a business borrower facing the situation described above, the highest priority should be to locate a non-traditional commercial lender that engages in the following commercial loan practices:(1) Openly welcomes special purpose properties and routinely finances such properties.(2) Provides commercial financing for both the business and real estate.(3) Accepts substantial seller financing.(4) Does not add special requirements to the business loan for special purpose commercial properties.(5) Has a history of making loans for the specific type of property under consideration.(6) Can accommodate both small and large commercial loans for special purpose commercial properties (for example, loans as small as $100,000 and loans as large as $5 million or higher).Copyright 2005-2006 AEX Commercial Financing Group, LLC. All Rights Reserved.
Unsecured Personal Loans Are No Dream for the Unemployed
There was a time when having a good college education was enough to ensure a path to financial security, but the economic realities of the past few years has changed all of that. No one is untouched by the credit crisis and subsequent downturn, and people at all levels have lost their jobs. As a consequence, there has been a rise in applications for unsecured personal loans taken out by the unemployed.It may sound like a desperate act on the part of these applicants, but there is little wrong with the idea of lenders granting loans to the unemployed. While nothing is guaranteed, unemployed loans without security are available, and provided the set criteria is satisfied, the loan can be approved.Of course, these criteria are essential. After all, lenders never offer loans for nothing, and they will want some kind of assurance that they can get their money back. And yet, the fact that it is possible to get loan approval for the unemployed, individuals with no source of income, seem counter-productive. But there is method in this madness.How the Unemployed Loans WorkDespite the name, there is little special about a loan for the unemployed. It is, essentially, an unsecured personal loan with the only difference to any other being the fact that they are tailored for those who have recently lost their jobs. The option works for a number of reasons, but principally because unemployment is usually temporary.It may depend on factors such as age and qualifications, but a return to employment is usually just a few months away. Of course, while a new job is never guaranteed, unemployed loans without security are attainable because the odds are in the favor of the individual. Even if the new job is not as well paid, restored financial security means the loan can be repaid.What is more, many who lose their jobs receive some redundancy payment, while others also begin small independent operations. So there is some income, making loan approval for the unemployed more acceptable.What Terms to ExpectStill, the terms of any such unsecured personal loan are not going to be ideal. First and foremost, the degree of risk that the lender faces is significantly higher than if they were granting a loan to a fully-employed applicant. Little surprise then that the interest rate is higher too.However, much depends on the employment prospects of the applicants, with those figured set to find work relatively easiest more likely to get approval. Of course, there is no way to find a guaranteed unemployed loan without security, but the odds are in favor of those who are young and qualified in growing sectors.The duration and size of the loan is also a key factor, with large sums likely to be rejected. It is important, to get loan approval, for the unemployed to be realistic in their application. Seeking a $100,000 loan is not wise, but seeking $30,000 to repay over perhaps 10 years is since repayments will be low, and the lender will make a tidy profit over the term.Finding the Best Unsecured Personal LoanIt is difficult to find a traditional lender, like a bank, that offers a good deal on unsecured loans, never mind loans to the unemployed. So the best place to find a deal is online. In fact, online lenders provide the closest thing to a guaranteed unemployed loan without security with a good interest rate.But even before seeking loan approval for the unemployed loans on offer, it is important to check out the lender with the Better Business Bureau. Unsecured personal loans can be a much needed rescue package, but from less trustworthy lenders, they can be a disaster.