LENDER’S VIEWPOINT by Broker, Forest Tardibuono
Home Loans, HARD MONEY AND The Dumpometer Scale
This aspect of buying a home examines the security for the loan. In most states, when you buy a home you pledge the property as collateral for the loan with a legal document called a deed of trust. They should actually call it a deed of no trust because if you do not pay your home loan and the lender forecloses, they take your home.
The lenders left in the mortgage market arena, let’s call them institutional lenders, the ones that are offering the 30 year mortgages at historic low rates, require a good property. But what does that mean?
You can figure that out by comparing homes you look at to one another on a scale that has, for example, a brand new home to the furthest right on the scale and the ugliest, smelliest, most rundown home you’ve ever seen or imagined, to the far left of the scale. We call that home a “dump” for lack of a better word, hence the Dumpometer Scale.
The 30 year fixed rate lenders will actually allow a home to be just a bit to the left of the perfect house on the far right. It can have some cosmetic things needed and a bit of what is referred to as “deferred maintenance”. But not too much. An FHA lender is about the same but anything that stands out in their appraisal may need to be repaired prior to close of escrow. These lenders will not allow you to buy a home that requires any major cash outlay. That’s because they are taking on buyers that are scraping to get the minimum down payment and would not have monies after their down payment and closing costs for repairs and/or upgrades.
Hard Money lenders allow every home on the Dumpometer Scale. I just made a home loan last month on one of these homes classified a “dump”. The roof was caved in, the well and septic had both failed, the foundation had crumbled away to almost nothing and blackberries were growing out of every exterior wall left standing. It was a perfect property for the buyers though, all their family is in proximity to the house. It was almost 2 acres for a very good value. Perfect Hard Money loan. By the way, these Buyers had perfect credit, great long term jobs, their own savings and family money to help make their dream home a reality. No 30 year fixed rate lender would touch that transaction because of the property. Once they are finished with all the renovations, they will refinance into a great 30 year fixed rate loan. Hard Money saved the day.
One final note here, these Buyers also made a very sound investment decision with this house. The sum total of the purchase price plus their costs to renovate will give them a home value that exceeds what they have into the property. Very smart and all made possible with Hard Money!
Hard money lenders generally require just 2 things: 1. Equity or a good down payment and 2. Ability to repay the loan.
A Hard Money broker will do this loan. There is equity and ability to repay. This handles the property aspect of a loan.
Forest Tardibuono- the Guy in the White Hat – is a CA DRE Broker with more than 23 years of experience in real estate and lending. His phone number is (707) 523-2099. Email is Forest@sunpacmortgage.com. See website @ www.sunpacmortgage.com.
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