Private Equity Fund - Education Services

What is hard money?

Hard Money lending is collateral based. Most hard money lenders prefer real estate as collateral. Real estate holds its value well and is immovable making it much easier to collect on if the borrower stops making payments. Since collateral is the main requirement, credit, income, and other person qualifications are not as important, and often are ignored in the underwriting process. But don't be surprised if a hard money lender asks for your personal information and runs a credit check. They still want to know who they are dealing with in order to prevent fraud.

Common misconceptions about what hard money lending is include: unsecured loans, personal loans, and loans for more than what the collateral will allow a lender to recoup from the foreclosure process. These loan types are best served by banks and large institutional lenders that feel comfortable with the additional risk of losing money in the event of non-payment. Most hard money lenders will not make construction loans, no money down purchase loans, and rehab loans based on fixed up values. These are special niches that only a small percentage of lenders cover.

Hard Money lenders are often from private sources. The lending philosophy is to fill niches conventional lenders will not touch. Because of their small size and personal involvement, hard money lenders can usually close a loan much faster and with less paperwork than a conventional lender. Speed and flexibility are the hard money lender's biggest competitive advantage, allowing them to charge higher rates and fees than conventional lenders. Because hard money is expensive, it is typically viewed as a temporary solution. Loans are usually written for no more than a 5 year term.

Hard money loan guidelines and typical transactions include:
- $80,000 to $10,000,000 per transaction/same project.
- Up to 70% loan-to-value of improved land.
- Residential and Commercial property acquisition, construction, refinancing, and cash out.
- Debt Consolidation, bankruptcy and foreclosure bailouts, and "Fresh Start" loans are common.
- Loans on commercial buildings, vacant land, and more ...

BAD CREDIT LOANS

Anybody that has a poor credit history may find it very difficult to arrange an unsecured loan. Most often the secured loan route is the only one available. It is because the lenders have property as security for the loan that they are able to offer more flexible guidelines for acceptance.

County Court Judgements and Defaults are the most common of adverse credit. These are registered by the provider of credit to the credit reference agencies which are in turn used by most credit providers.

They can stay on your credit file for some years and will make obtaining unsecured credit very difficult although secured lenders are far more sympathetic.

Secured loans are amongst the most effective way raising funds if you have had some credit difficulties in the past but be aware that your home is at risk if you do not keep up the repayments on a mortgage or loan secured on it.

These loans can be seen as a method to rebuild credit after a period of change or difficulty. Private Equity Funding will help you build your credit so that you can pursue a conventional loan in the near future.

Private Equity Funding works hard to establish good working relationships with Loan Brokers. Though we do work directly with borrowers, we push toward being more of a wholesaler, and emphasize building relationships with professionals who can help their clients understand when private money might be an appropriate option to pursue. We will work with brokers in one of two ways:

The broker refers a client directly to us, and we package the loan, working directly with the borrower. In this case, we pay 20% of our total commission to the referring broker.
The broker submits a full and complete package to us, and remains "in the loop" throughout the loan transaction. In this case, the broker is free to price the end product to their client, adding whatever reasonable fees they can negotiate.

In the event that you are a licensed Loan Broker, and wish to submit a loan package to us, you may want to run the concept by us first. (You may wish to use our Loan Proposal Form to do so.) Once we have established that the concept makes sense, please prepare a package using the guidelines on our Packaging Guidelines page, and then call us to arrange a handoff.

INFORMATION FOR INVESTORS

Private Equity Funding currently works to assist in the placement of funds for nearly 45 active investors. Some of these relationships go back many years and involve enormous levels of trust, and others are just now being developed.

We have strong convictions with regard to the nature and integrity of the investor-broker relationship. Our basic principals may be summarized as follows:

We believe that fixed return instruments (Deeds of Trust and contracts) secured by real property are an excellent investment alternative. They combine a high degree of safety and predictability with the larger returns usually associated with equity style investments. However, as is true with all investing, it is important for the investor to move forward with a clear mind and open eyes.
We believe that it is our job to attempt to discover and provide to our investors, all the relevant information pertaining to a particular investment offering.
We will NEVER pressure our investors. Our job is to provide information and provide assistance with the analysis, but not to otherwise influence the investor's decision-making process.
We will NEVER abandon our investors after a particular loan is closed. For the full life cycle of the loan, we will be available to assist our investors with the process.
We are not interested in one-time loans from investors, but rather in building ongoing investor relationships. We do not require an exclusive relationship with our investors, but DO ask that they engage in a relationship of mutual respect, and ask for--as well as offer--the benefit of clear and honest communication.

If you are interested in learning more about investing in real estate securities, or would like to get more information about Private Equity Funding and our offerings, you may call Matt Zarabian at 888-906-0980 or e-mail Info@privatelend.com

PROCESS

If the scenario is not one that Private Equity Funding can act on, we will tell you right away and the process will be terminated.

Having obtained a complete summary, a Loan Originator for Private Equity Funding will provide a ballpark quote regarding rate, fees, term, and loan conditions. These quotes are preliminary and can be altered if any adverse changes occur on the file. If you are a broker, you shall then take this information to the borrower, discuss and explain it, and make sure that it is acceptable to the borrower. In any case, if this quote is not acceptable to the borrower, then the process is terminated.
Otherwise the broker/borrower shall contact Private Equity Funding and say that the loan is a go. At that point the Loan Originator will provide the broker/borrower with a list of items needed in order to process the loan request. The broker/borrower shall collect the appropriate items and overnight mail these to Private Equity Funding.
Private Equity Funding will generally review a file submission within 48 hours. If details come out that are problematic, additional information or supporting documentation may be requested at this point. If the loan proves not to be doable based on a complete review of the file, the loan process is terminated at this point. (Generally this would be the case if the documentation did not support the concept initially submitted in step 1.)
Private Equity Funding will ask for a loan agreement letter to be drafted and signed. Upon receiving a signed copy of the letter, Private Equity Funding will make an appointment to personally inspect the property.
Private Equity Funding will perform an on-site inspection of the property (and visits various comparable properties). This is generally the final step in the underwriting process. It is rare that a loan is terminated at this point because the process leading up to this point has been rigorous and complete. Termination is only likely to occur if there is a notable discrepancy between what could be noted on paper and with photos regarding the subject property and the comps and what could be seen upon direct personal inspection. (This occurs maybe 5% of the time.)

At this point, the underwriting is complete and the loan can generally be closed within 1 to 5 working days.

BROKER PACKAGING GUIDELINES

When submitting a loan proposal, please include:

Residential loan application (1003) or equivalent (MUST BE SIGNED BY BORROWER)
Credit report (tri-merge) (if loan is submitted by broker; if borrower submits directly, Private Equity Funding will obtain)
Comps, an appraisal, or some other objective measure of value
Photo(s) (if not included in an appraisal)
Cover sheet describing/summarizing parameters of loan
Preliminary Title Report(s) for all properties

If borrowing entity is corporation

If purchase

If credit history is rough

If present loan is in default

If leased land

If 2nd or subordinate position loan

If Income Property

Mortgage Calculator

This will be the same one you are using for grace, but this one only calculates interest. Then there will be one more option where they can enter the same loan amount and this one will be with principal…the same one as grace’s so they can compare how much they save.

The Players: In any loan transaction there are at least two parties. A “Borrower” applies for a loan. If determined eligible, a “Lender” provides a loan. There are many types of Lenders including banks, savings and loans, nonprofit organizations, public agencies and even relatives. In some cases, a third party, the “Guarantor” will also be included in the transaction (see Guarantee).

Amortization: The period of time on which the repayment of loan principal and interest is based. Sometimes loans may have different amortization schedules and terms. There are three basic ways to repay a loan: (a) in equal installments, each containing a blend of principal and interest; (b) in varying but regular payments which result from paying off principal plus interest on the amount actually borrowed; and (c) in very irregular principal payments often incorporating a larger final payment (see Balloon Payment).

Balloon Payment: The final payment of a loan that has a longer amortization period than term. For example, if a monthly payment is based on a period of 10 years, but the actual term is 5 years, a large payment (roughly half of the loan amount) is due with the final payment at the end of 5 years.

Bridge Loan: Short-term loan made in anticipation of long-term funding or financing.

Building and Real Estate Costs:

a. Soft Costs – Expenses, other than hard costs, incurred in developing a real estate project, including legal and lending fees, architectural and design fees, permits, etc.

b. Hard Costs – The direct costs to construct a building or structure, otherwise known as “bricks and mortar” costs, including acquisition of property, construction, equipment, etc.

c. Hidden Costs – Less visible costs associated with the facilities development process, such as staff and board time and attention.

d. Contingency Costs – A portion of the construction costs set aside to cover unexpected “hard” costs.

Building Reserve: A capital improvement reserve fund. Money set aside to pay for facilities upkeep: where the amounts can be large, the ultimate need a certainty, but where the exact timing is uncertain. These are often big-ticket items, like replacing the roof, which are difficult to accommodate in a single year’s budget.

Collateral: The property a borrower pledges to a Lender to secure repayment of the loan. Collateral could include: a lien on your house, equipment from your business, or a bank account . If the borrower defaults, the lender has the legal right to seize the collateral and sell it to pay off the loan.

Debt: Money, goods or services that one party is obligated to pay another in accordance with an expressed or implied agreement.

Debt Service Coverage or Debt Coverage Ratio: A calculation a Lender uses to determine ability to repay a loan. This calculation is typically expressed as a ratio. Most Lenders have minimum debt service coverage requirements ranging from 1.05: 1.00 (i.e. the net income must be projected to be 5% in excess of the loan payment) to 1.25: 1.00 (i.e. the net income must be projected to be 25% in excess of the loan payment). DSC or DCR = Net Income (after all expenses excluding debt service) = 1.10 : 1.00 Total Loan Payment.

Default: Failure to pay a debt or meet an obligation.

Equity: Represents the difference between an asset’s market value and the amount of debt or other liabilities. In terms of a child care equity that is provided through internal assets, savings, grants, individual donors, collaborative resources and other sources can be used to assist in funding some of the facilities development costs. It is best to use equity funding for the planning and predevelopment stages of developing child care facilities, while debt (loan financing) is more fitting for the real estate acquisition and construction costs incurred during the development stage.

Fees: Charges by a Lender for making the loan. Fees can include a range of costs.

Forgivable loan: A loan made with the understanding that if the borrower meets certain requirements, repayment of the loan will not be required.

Guarantee: A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract. Loan guarantee, or loan insurance programs are designed to make certain loans less risky for lenders, such as loans for community economic development projects and for small businesses like child care.

Interest: The cost of using loaned money, usually expressed as an annual percentage, that a lender charges a borrower for the use of the principal over time.

Interest Rate: The amount a Lender will charge for the use of their funds. Interest rates vary greatly from loan to loan and are frequently tied to industry measures such as Prime Rate. For example, if Prime Rate is 4.75%, then a “Prime Plus Two Percent” rate would mean a loan with a 6.75% interest rate.

Leasehold Improvements: Renovations to leased space to suit the renter’s needs. These may be paid for either by the landlord or the tenant.

Lien: A claim a Lender may place on property in return for making a loan. If a borrower is unable to make loan payments as agreed, it gives the Lender the right to try and collect repayment of the loan through selling the borrower’s property. If the lien is placed on real property such as a house, this lien is often referred to a “Mortgage” or a “Trust Deed.”

Line of Credit: A set amount of money available for the Borrower to borrow as needed. The borrowed amounts are then paid back in installments determined by the Lender. A line of credit is distinct from a loan because after the money is paid back a borrower can access it and use it again, which makes it similar to a credit card.

Loan: Transaction wherein a Lender allows a Borrower the use of a sum of money for a specified period of time at a specified rate of interest.

Loan Amount: The amount of a loan is determined by how much the Borrower needs to complete the project and the Lender’s assessment of the Borrower’s ability to repay. Some Lenders may have minimum and maximum loan amounts.

Loan-to-Value Ratio (LTV): The ratio of money a Lender is willing to loan relative to the appraised value of the property or other security.

Mortgage: Security instrument by which the Borrower (mortgagor) gives the Lender (mortgagee) a lien on property as security for the repayment of a loan.

Operating Reserves: Funds set aside annually to be used to offset possible operating losses due to unexpectedly low revenues or unusually high expenses.

Points: An up front fee a Lender may charge for a loan, expressed as a percentage of the loan amount. “One point” equals one percentage of the loan amount. Thus, one point on a $10,000 loan is $100 ($10,000 X .01).

Prime Rate: The rate, as announced from time to time by commercial banks, as the prime rate. (See Interest Rate).

Principal: The original amount of money borrowed, and the amount that the Borrower must pay back, not including interest.

Term: The agreed upon period of time for which a loan is made. A loan provided for 10 years has “a 10 year term.”

This is merely a guide so you can formulate an idea of the anticipated closing costs.Actual costs will vary, and not all services may be rendered for payment.

Lender-related costs
The cost of a mortgage loan goes beyond your rate and points paid. Often there are fees associated with a mortgage loan application that are collected throughout the process.

At the beginning of the application process, you'll receive a Good Faith Estimate of loan costs. As its name states, it is a 'good faith' or as accurate as the information provided at the start of the loan process. You'll also receive a Truth in.

Lending Disclosure - be sure to read this document as it contains regulatory information.

Typical costs include:

Loan Origination Fee - Covers the lender's administrative costs of processing the loan. It may be expressed as a percentage of the loan (for example, 1% of the loan amount).

Points - A lender fee. Each point you pay equals 1% of the home loan amount, so for a $100,000 loan, 1 point equals $1,000. In many cases, points are tax-deductible (ask your tax advisor). Private Equity Funding charges anywhere from 1 to 5 points, but may vary depending on the circumstances of the deal.

Application / Processing / Underwriting Fees - Are fees charged by the lender to cover the cost of completing the application, processing the loan, evaluating the risks involved, analyzing the file, and establishing conditions.

Document Preparation and Signing Fees - A fee charged by the lender for preparing all the documents required for the closing of a loan. A minimal fee may apply for the added convenience of signing your documents when and where you want to (including your home or office) - eliminating a trip to the Credit Union.

Third Party Fees - Fees charged by the third party vendors, such as an appraiser, escrow and title. All lenders typically require some of these fees to be paid by the borrower.

Appraisal Fee - This fee is for a determination of the value of a property. A report is prepared by a professional, licensed appraiser to explain the determination of the fair market value.

Credit Report Fee - Some institutions charge for the cost of the credit report that is used to help determine your creditworthiness. These reports are obtained from credit agencies that display your history of paying debts. This fee is often paid for at the time of application for a loan.

Flood Determination Fee - Covers the Federal Emergency Management Agency's (FEMA) review to determine if a home is located in a flood zone and if flood insurance is required.

Closing/Escrow Fee - Pays for the services of the escrow agent

Abstract or Title Search - This fee cover the costs associated with a written history of the title transactions involving the parcel of land where a home is located, including everything recorded in the public record. The search checks for liens, unpaid claims, restrictions or other issues.

Title Insurance - The premium for title insurance, which protects you and the lender in case of an unresolved claim affecting the title to the property.

Homeowner/Hazard Insurance - This fee involves a premium for a form of insurance policy required to protect against certain risks, such as fires. A regular payment for this insurance can be included in your monthly home loan payment through an escrow or impound account. The cost of the first year's policy is paid at closing out of loan proceeds.

Recording Fees and Transfer Tax - Are charged by most states and localities for recording the purchase and refinance documents, any liens on public record and transferring ownership of the property.

Notary Fee - Covers the cost of having a licensed notary public certify the signing of your closing documents and signature.

Survey Fee - A fee for the certification of the location of the property, its dimensions, boundaries, contour, and the location and dimensions of any improvements. In some cases, the lender can use the original survey done for the purchase of the property.

Inspection Fees - Charges for the various inspections that may be required for the sale, such as property, pest and septic tank inspections.

Pre-paid Interest - When you buy a home, you typically don't make the first payment until the beginning of the second full month after your loan closes. For example, if your loan closes on May 28, your first payment will be due on July 1. However, in this example, you pay at closing for the interest on your new loan from the day of closing until June 1.

Property Taxes - Property taxes for real estate in California must be paid semi-annually to the tax collector. Property taxes are the most common expense prorated (shared or split) between the buyer and seller. Your closing agent will typically determine your portion of the taxes from the date of closing. This varies by state.

The closing costs listed above are general in nature and not reflective of actual dollar amounts charged by Private Equity Funding. Because of the nature of Hard Money loans and Private Equity Funding’s fast and efficient underwriting process, most of the fees above are saved by the borrower.
Please check with each individual service provider to confirm service fees.