- Transactional Funding
- Network of Private Investors
- Lines of Credit
- Conventional Lending
- Proof of Funds
Visit Our Transactional Funding Partner
Transactional funding is a short term loan designed to facilitate wholesale transactions. Generally, most wholesale transactions involve an assignment of a new buyer, which is typically called an assignment of contract. However, within the last 10-15 years, banks have restricted assignments of contract on REO foreclosures and short sales. Fortunately, transactional funding provides an avenue to do a wholesale transaction even with bank owned/controlled properties. This process is called a ‘back to back’ or ‘same day’ close.
In a back to back/same day close, an investor will purchase a property and then immediately sell the same property to a cash buyer for a profit. In most states, state law will require the investor to fund the first transaction before they can sell the property. Since many investors typically leverage “other people’s money” to finance deals, this is where transactional funding comes into play.
Most transactional lenders will provide 100% of the funds necessary to fully execute a back to back/same day close as long as two requirements are met. First, there must be a signed purchase contract between an investor and a seller (I.E. Bank). Second, there must be a signed contract between the investor and a cash buyer (the buyer must buy with cash). Because the transactional lender is loaning money solely based upon the purchase and sell of the same property within a short period of time (1-3 days), they typically will not require a credit check, income verification or an appraisal of the property.
Transactional lenders will typically charge investors 1-2% of the purchase price to fund a back to back/same day close. This fee is typically taken out of the investors profit when the property is sold to the cash buyer.
Lastly, back to back/same day closings are recorded transactions. As such, an investor using transactional funding will incur closings costs on the purchase and sale of the property, even though both transactions occur within hours or days of each other. Typical closing costs will include recording fees, title insurance, title fees, administration fees, taxes, etc…As a result, investors using transactional funding must account for these costs when negotiating the purchase and sales prices.
Visit Our Network of Private Investors
Network of Private Investors:
Private Money Lenders are private people or companies that use their own cash or lines of credit to fund real estate transactions. Their money usually comes from investments outside of real estate such as CDs, Stocks or even savings accounts. Because these lenders are generally new to real estate investing they are often easier to negotiate with and obtain good terms.
When Private Money Lenders lend money it is common to see their interest rates at 10%. However, this can be as low as the mid single digits or as high as 15% or more. Many times Private Money Lenders do not charge points and are often more interested in quality deals.
A quality deal will determine in large amount what kind of interest rates you may obtain. The lower your purchase price from the value, the more you put into a transaction, where the property is located and whether you are buying to fix and flip or rent will change the quality of a deal.
Most Private Money Lenders are interested in the property they are funding. In their minds they see opportunity as: if you lose the house to them they can make more profit. Because these types of lenders are often more interested in the property rather than you they may not require credit pulls or income requirements.
You may consider Private Money over other options if you are looking for short terms and ease of financing without all the qualifications such as good credit, down payments, and paperwork that generally come with conventional financing. The ease of obtaining financing combined with short term lending make Private Money Lending ideal for fix and flip scenarios.
Visit Our Line of Credit Partner
Lines of Credit: (US Residents Only)
There are different lines of credit available to most people. In real estate we generally focus on two types of credit lines: 1) Secured and 2) Unsecured.
An example of a secured line of credit could be Home Equity Lines of Credit (HELOC). These lines of credit are secured by houses. Similarly, cash out refinances may create a type of line of credit that can be drawn from and used again and again.
Examples of unsecured lines of credit may be credit cards or signature loans. A credit card is not secured by anything such as real estate. Signature loans are also not secured by anything other than your signature.
Because most lines of credit come through conventional means such as banks there is often a credit score requirement. This means that the higher your credit score and the better your credit history the better your interest rates and the more availability for loans you may have.
Depending upon your credit you may see interest rates around 9-15% or potentially higher. Some unsecured lines of credit, such as credit cards, may be available for 12-24 months interest free and can commonly range from $10,000 – $100,000.
Consider lines of credit if you are looking for high speed and ease of access to funding. After going through the preliminary due diligence, loan application lines of credit are available often in a matter of days or even minutes. Because of the way lines of credit are set up they can often be used repeatedly without requalifying and can be used for purchasing, rehab, closing costs or most other real estate related expenses.
Visit Our Conventional Lending Partner
Conventional Lending: (US Residents Only)
Conventional lending is commonly equated to banks, credit unions or lending institutions. These lending companies offer the best rates available in the market. The interest rates they charge are often based on the interest rates the Federal Reserve charges them.
Obtaining these loans and getting good interest rates will almost always be dependent upon you having a good credit score (normally above 680) good credit history, two years taxes, two months paystubs, and a good debt to income ratios.
Debt-To-Income (DTI) is a ratio determined by the debt payments paid out versus the income received each month. For example: You make $1,000 a month and you pay $350 in credit card, car and other debt. You would have a 35% debt to income ratio. Most lenders stop lending if you, the borrower, have a debt to income ratio above 42%.
Conventional Lending follow conventional patterns. Such lending patterns are often 30 or 15 year terms and common bank interest rates. These loans can be found as Home Equity Lines of Credit (HELOC), cash out refinances, rate and term refinances and reverse mortgages.
Though this type of lending has, generally, the highest requirements when obtaining loans it is often longer term financing with the lowest cost in both interest rates and origination costs. Because of the low costs and long terms these types of loans are ideal for buy and hold transactions.
Create a Proof of Funds Letter
Proof of Funds
Proof of Funds (POF) letters are letters similar to pre-qualification letters and are provided by Hard Money and Private Lenders.
Obtaining a Proof of Funds is often very easy and does not normally cost you anything. The letter will state that you or your company have funds available to purchase real estate. These available funds may be in the form of cash; which may also be stated in the letter.
Proof of Funds help you show your interest as a buyer. If you compared two identical offers side by side and one had a proof of funds and the other did not you can imagine that the offer that had a proof of Funds attached has a higher chance of getting the offer accepted.
Along with a proof of funds letter, you may find bank statements. Proof of Funds is a letter stating there is funding, bank statements are the actual proof that funding exists, therefore, backing the proof of funds. The Proof of Funds letter with a Bank Statement is a very powerful statement that you are ready and serious about purchasing.
Proof of Funds are used to help you get properties under contract for any reason. This could be whether you are wholesaling, assignments of contract, buying and renting or buying and flipping.
Response would like you to know:
- All lenders are 3rd party referrals from Response.
- You will be directed to a 3rd party website and governed by their terms and conditions.
- Any loans or services applied for are subject to that lender’s policies, terms and/or conditions.