Evaluating a hard money Mortgage
There are many different investment opportunities but the basic that we consider are as follows:
Private-money investors consider the underlying collateral that secures the Mortgage as the primary and most important factor for consideration. There was, however, a time when the property was the sole consideration to securing a Mortgage and there remain a few ‘pure-equity’ players — lenders whose underwriting and lending decisions solely are based on the strength of the collateral. In today’s economy, however, the property you present to the trust-deed investor is the primary source of collateral in the Mortgage. In reviewing the collateral, the lender will evaluate:
- Protective equity. In any investment, intrinsic hedges help reduce risk. Protective equity is a hedge within a trust-deed investment that provides a cushion for the risk taken in extending a Mortgage. The amount of protective equity in the property provides protection to the investor against payment defaults, market fluctuations and property devaluation.
- Mortgage-to-value (LTV ) ratio. The ratio, established by the lender, is expressed as a percentage of the appraised value of the property or quick sale value. It represents the maximum Mortgage amount that the lender will consider and determines how risky it makes the Mortgage. Obviously, the lower the Mortgage amount is to the value of the property, the more equity there is to protect the lender in the event of default. This can result in a favorable Mortgage determination. Each lender has its own LTV limit.
- Marketability. This is the likelihood that something will sell. Lenders review the property to find out how marketable it is. This helps determine how probable it is that the property can sell, if needed, based on its location, size, upkeep, etc.
- Salability. The probability of selling the property at a specific time, price and terms.
- Condition.The property’s physical condition, which can be new, usable, repairable, salvageable, etc.
- Location. This is in relation to the investor and can be local, in major market, in a prime location, etc.
- Quality control: A collateral located within a certain geographic area may be designated as an eligible blighted area. The designation of an eligible blighted area may present conditions unacceptable to an investor.
- Risk factors.These may include market-price stagnation or other unexpected market factors.
Rates, APR’S, and fees are subject to change without notice, some restrictions may apply, Subject to credit approval.