A Palm Springs area home buyer uses owner occupied private money financing through Peer-To-Peer Trust Deeds of Walnut Creek, California.
Challenge: The buyer of this condo in the Palm Springs area was self-employed for less than two years and was not able to obtain a conventional mortgage to complete the purchase even though they were coming in with a 60% down payment. Fannie Mae and Freddie Mac require at least two years of self-employment to issue a loan.
Solution: There were two options here. We could have done a 12-month bridge loan with the entire balance due in one year. But what if things didn’t work out according to plan with the new business and the borrower needed a little longer to pay off the entire loan? Hiccups and glitches sometimes come at the most inconvenient time and can wreak havoc across a person’s financial life. (We’ve seen a lot over the years).
The borrower went with a 20-year fixed rate owner occupied private money loan through a Los Angeles-based private money lending fund. The upfront costs (4 points) were a little higher but the interest rate (9.75%) was a little lower than our typical 12-month bridge loan (2 points & 11.00%).
Our borrower appreciated the additional certainty of having 20 years to pay off the loan rather than being under the gun to pay the loan off in 12 months months. Yet, their plan was to refinance into a conventional loan as soon as they qualified, which hopefully would be within the first year.
The trust deed investor issued a low-risk loan to a strong borrower who put 60% down on the purchase, which provided plenty of protective equity. This loan will most likely be on the books for 9-12 months with an outside shot of going two years. The owner should be able to refinance with a conventional loan or take out a small loan from a local credit union on a 5-7 year balloon payment.
Owner Occupied Private Money Financing Terms:
- $72,000 Loan Amount (40% LTV)
- 240-Month Term
- 9-Month Prepayment Penalty