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Private Money Lending

Individuals, who have a great deal of money at their disposal, may specialize in lending it to the people who find it hard to qualify for loans provided by banks and credit unions. The inability to qualify for loans provided by the aforementioned entities can be pegged down to an impending foreclosure, the need for hard money commercial construction loans, or requiring cash to finance the purchase of a property whose value cannot be appraised accurately. Such borrowers pose a great deal of risk to the traditional lenders due to a variety of reasons. Hence, it goes without saying that lenders, who provide loans to high risk individuals and businesses, expect adequate compensation as a reward for the risk assumed. Despite stringent conditions imposed by private lenders, borrowers, who have fallen on hard times, try to seek loans that are usually hard to come by.

The Need for Private Money Lending

Although, the government is providing a number of facilities to help people avoid impending foreclosures, the eligibility criteria for qualifying for such loans may preclude the borrowers from obtaining the same. For instance, borrowers whose loans are not owned by Freddie Mac or Fannie Mae cannot opt for a loan modification or a mortgage refinance under the Making Home Affordable Program. Again, this program is only meant for people whose loans are insured by the FHA (Federal Housing Administration). Borrowers, who are delinquent or have delayed payments by more than 30 days in the past 12 months, will not qualify for a mortgage refinance under the Home Affordable Refinance Program (HARP), despite the loans being owned or guaranteed by Freddie Mac or Fannie Mae. Hence, such borrowers would be forced to approach private money lenders to avert foreclosures by refinancing their mortgage. The loan to value ratio, i.e., ratio between the amount of loan and the appraised value of property, needs to be low. This is possible only if the homeowner has sufficient equity in the house. The money is lent for the purpose of refinancing a primary mortgage, and the borrower may try and purchase points in order to reduce the rate of interest on the borrowed sum. In other words, the private money lender ensures the safety of the money that is lent, by providing a loan against a property that has substantial market value. Borrowers, who satisfy these stringent conditions, can hope to obtain a loan and thwart foreclosure proceedings.

These lenders also provide commercial construction loans to businesses as an alternative to bank loans for making the requisite improvements to an existing structure or for financing the construction of a new building. Again, these are collateral based and the reason for approaching a hard money lender may be attributed to the business being a startup and not having supporting financial documents, justifying the ability of the firm to make good its commitments.

A private lender provides a loan, that is typically secured by an asset, that assures him of recovering the loan by auctioning the repossessed asset. The rate of interest is also higher than the interest charged by banks and credit unions. The high rate of interest is a compensation for the risk assumed, since risk and reward should be comparable to make good business sense. He generally expects the borrower to repay the loan as a lump sum. Lump sum repayments or balloon payments are the characteristic of this method, since the lender is unwilling to extend the repayment period or provide flexible repayment terms to the borrower.

Cosigner Responsibilities

You are in urgent need of a loan, but due to a bad credit history or no credit history at all, the loan granter requires you to get a cosigner for the agreement, before approving the amount. What does a cosigner mean?

In general terms, a cosigner is a person who takes equal responsibility of the loan payment as the primary borrower. Suppose a friend or relative of yours needs a loan for any purpose such as buying a house or a car, or getting a student loan, the loan company whom he approaches would normally require another person to be responsible to make sure the primary borrower repays the loan at the prescribed intervals. The person who takes this responsibility is known as a cosigner.

If you become a cosigner for a person, in case he fails to repay the amount back to the bank or the granter; you will be responsible for repaying the money. If the borrower is disabled or dies, leaving behind the business loan, auto loan, or home loan to be paid; you will have to pay the remaining amount. So, even though you do not possess the property or thing that was purchased on loan by the borrower, you still have to make the payments. Along with the loan; you will also have to pay the late fees, interest, collection charges, or any other miscellaneous charges involved.

What are Loan Cosigner Responsibilities?

Cosigning for another person is totally an act of great responsibility and risk. Therefore, it is very important that you keep some considerations in mind before entering into such an agreement. Make sure that the borrower, who may be any of your friend or close relative, has the required means of paying the loan back to the funding entity. It is not a good idea to enter into a cosigning agreement without assessing the borrower’s ways of payment.

One important thing to consider is that if the borrower is unable to repay the loan; it would not only have an adverse effect on the credit records of the borrower, but also will affect the credit ratings of the cosigner. And if this becomes the case, then the cosigner may face difficulties in the future regarding obtaining loans.

As a cosigner, you should also make sure that there is no collateral that is set as a security with the granter. Keep away from using property or fixed assets as a security. This might run the risk of ruining your future. If you are a cosigner, you should keep in touch with the granter at regular intervals. By doing so, you will ensure that the borrower is making timely payments.

Make a file to store all the loan related documents. Remember that you are also a part of the deal, and it is always better to record all details with you. It is recommended to even keep the least important document for further reference.

These are few important responsibilities that are to be considered before becoming a guarantor for someone. After you enter into a cosigning agreement, the debt details will reflect on your credit report too. If we take a look at the positive aspects of cosigning, if done with a trusted borrower; this can be of a great help for the borrower to secure any kind of loan for his needs.

Loan Underwriting Process

When a person applies for a loan, he is termed to be an endorser or applicant of the loan. A person or organization who lends the loan is known as the lender. In between the lender and borrower, sometimes, there is an existence of a loan agent. After the application is made, the agent and the lender undertakes a very important procedure known as underwriting. In some cases, the underwriting is done by both, the lender as well as the agent, but in some cases, only the agent does the procedure.

It must be noted that there is no single loan underwriting definition, and the concept of underwriting is used for a varied number of reasons in the world of finance.

What is Loan Underwriting?
The underwriting procedure basically involves ascertaining the creditability and capability of the borrower to repay the loan. In cases where the loan is a commercial or mortgage loan, the projected value of the collateral is also forecast. Thus, basically, the underwriting process involves ascertaining the recovery of money, and its rate of recovery. The process in itself is quite intricate and difficult. Loan underwriting is usually conducted for bigger loans, such as mortgage and auto loans. The smaller loans, such as cash advance and payday loans, however, do not have this complex underwriting processes. Instead, a simple approval process is used. In the United States, Freddie Mae and Fannie Mae, along with the Federal Housing Administration, provide the detailed underwriting guidelines.

Loan Underwriting Procedure
The best way to understand an underwriting procedure is to understand the considerations and aspects of loan underwriting. The guidelines that are provided by the aforementioned institutions are based upon the following aspects.

Income: One of the most important aspects that is considered during the process is the income of the borrower. The loan’s installment is also calculated as per the income of the borrower. The size of the loan, i.e., the total amount that is lent, the down payment, and rate of interest are all decided upon the income of the borrower.
Debt to Income Ratio: The second important factor that is considered is the debt to income ratio, which is the ratio between the monthly payable debts and monthly income. Debt to income is sometimes also calculated for the entire year. The intention of calculating such a ratio is that it gives the perfect amount of income that is going to be used to pay the debt.
– Employment and Source of Income: A very important aspect that is considered by the underwriters is the employment status of the borrower, and the source of income. Underwriters also further analyze the income projection and the growth of income rate, in cases where the loan is very long-term.
– Credit Report: The credit report of a person considers two important facts―the credit history and the credit rating. The history is a record of all the previous credit related activities of the borrower. The rating is a figure that denotes the credit weight of the borrower. A rating is usually expressed in the form of a credit score, and is calculated on the basis of the credit history, late payments, and defaults.
 – Projection of the Property: The value projection of the property is also considered by the underwriters. This projection is taken into consideration in cases where the asset is a real estate. There are cases where mortgage and home loans are defaulted by the borrower, or foreclosure has to be initiated. In such a case, the lender takes over the ownership of the property, and sells it off to recover losses. The projection of the value of the property, is thus, an important aspect of mortgage loan underwriting.

It must be noted that commercial loan underwriting is different and much more complicated than the underwriting procedure for individual customers.

Hardship Loans

The concept of hardship loans is quite different as they belong to a separate class of loans. Roughly parallel to the debt consolidation loans, hardship loans are utilized as means of solving financial junctures. Several people have successfully used such loans during the time of economic recession. In some cases, due to the negative status of the economy, the loans did not have a significant positive outcome. But in cases where the economy is booming, this category of loans tend to be of great financial help. The results, are thus mixed.

Hardship Loans for Students
The most common hardship loan is the one that is given to students, and is provided by many major banks such as Wells Fargo. More often than not, students are compelled to apply for common student loans as a result of high educational fee structure. During the course of their education, they are also forced to borrow various other loans such as cash advance loan and other personal loans. After their graduation, a large number of students are in grave debt or do not have any financial means to pursue their education further. The Federal Family Education Loan Program is a program that is offered for several such students, through which an Economic Hardship Deferment is implemented. This helps the students to defer the repayment of several loans. This deferment enables them to modify their loan. In such a case, the student loan installments are subsidized or rather reduced, with the hardship loan paying a part of the installments. The hardship loan is repaid later, and that too at a very low rate of interest. In order to use such loans to one’s advantage, there are some strict qualifying conditions that are to be fulfilled by the student.

Hardship Mortgage Loans
Two very common real estate loans include ‘hardship mortgage loans’ and ‘hardship refinance loans’ that are availed by people in cases where the current mortgage tends to be troublesome. Now, the hardship loan in such cases can be used for 3 purposes, namely, refinancing, modifying the mortgage, or for consolidating the current mortgage. The process of refinancing involves differing the current installments. Any person can borrow such a hardship loan for real estate. The hardship loan amount is forwarded to the lender of the mortgage, who reduces the monthly installment. The reduced amount is then fulfilled by the hardship loan. The hardship loan can be repaid after the mortgage loan is paid off.

Hardship Loans for Consolidation
In several cases, loans are given for debt consolidation where the borrower is neck-deep in debt. This loan works exactly like a consolidation loan where it is used to repay some existing debt in full. After repaying all the lenders with differed payments, the borrower of the loan has to repay the lender of the hardship loan. The difference between a conventional consolidation loan and a hardship loan is that the repayment schedule of the hardship loan starts after some time, and not immediately, like it is in the case of a consolidation loan.

Hardship Loans for Victims of Natural Disasters
These loans or grants are utilized by people who are the victims of natural disasters. The grants are made available by Federal Emergency Management Association (FEMA) which help the victims recuperating from a natural disaster by partly providing them with the essential items they have lost and by supplying financial aid required in housing, clothing and basic food needs.

Hardship Loans for Veterans
Certain offices of veteran’s affairs, offer hardship loans pertaining to health matters such as medical bills or surgery, when a veteran is unable to pay the net amount. A person can inquire in their own office and obtain information on such grants and if at all the benefits are available to them.

The mechanism and features of these loans differ from lender to lender and also according to the purpose of the loan. Some common variants of the loan include hardship personal loans, hardship loans for bad credit and hardship home loans.

Credit Union Vs. Bank: Which Should You Choose?

Many times, people get confused whether to invest in credit unions or banks. This is because both come with their own set of pros and cons. Often, it becomes difficult to understand the difference between these financial institutions because of the similar services offered by them. However, both differ from each other on many factors. While investing in a bank guarantees various facilities, one can become a member of a credit union if he wants to reap the benefits of better interest rates on deposits as well as loans.

However, credit unions open the door of their advantages only for their members, whereas banks are flexible in this regard, and allow anyone who is ready to pay the minimum deposit to become their customer. If you want to know more about the various factors that set both these financial institutions apart from each other, this Buzzle article will give you a comprehensive comparison list of the same.

– Interest Rates

Credit Unions
They have lower loan rates and higher deposit rates in order to return the earnings back to the members.

Banks
They have lower deposit rates and higher loan rates in order to make profits.

The Verdict: Credit Unions

– Products and Services

Credit Unions
Most of the credit unions have a traditional setup, and may not offer too many different products and services.

Banks
Due to competition among banks, they keep on introducing new products and services which prove beneficial for the customers.

The Verdict: Banks

– Customer Service

Credit Unions
They have a more informal kind of customer service, as there are limited number of members and employees. Customer service executives may know the members personally. They may not offer round-the-clock customer service or too many online services.

Banks
Banks have excellent customer service which works 24/7. They also offer a wide range of online banking services which makes transactions extremely easy for the customers. Though the customer service executives are formal in their approach, in most cases, problems are solved immediately.

The Verdict: Banks

– Ownership

Credit Unions
They are owned by members and not stockholders. As there are no outside members, and the directors also work voluntarily without any remuneration, you will benefit immensely from this kind of arrangement.

Banks
Customers of banks do not have any kind of ownership interest in the bank. Banks are often owned by investors who may not be their customers.

The Verdict: Credit Unions

– Membership

Credit Unions
Credit unions are not open for public and serve only their members. The eligibility requirements may also be very strict, and they restrict the number of members.

Banks
Banks are open to the general public. There is no restriction to the number of customers, in fact, banks try to get maximum number of customers.

The Verdict: Banks

– Profit Orientation

Credit Unions
Credit unions are not-for-profit financial cooperative institutions, and the earrings are distributed back to the members.

Banks
Banks are for-profit corporations which pay declared earnings to the stockholders.

The Verdict: Credit Unions

– Regulated/Insured By

Credit Unions
Credit unions are regulated by the Federal government or the State based on their charter. Credit unions are federally insured under the National Credit Union Share Insurance Fund (NCUSIF). It is stronger than the banks’ insurance fund.

Banks
Banks are regulated by the Federal government or the State regulators depending on their charter. Also, they are federally insured by the Federal Deposit Insurance Corporation (FDIC).

The Verdict: Credit Unions

Fees

Credit Unions
They have fewer service fees as compared to banks. They may charge late fees, but the amount goes back to the pool which provides loans to the members at lower rates. They sometimes even offer free balance transfer. Also, the minimum deposit requirement is very low.

Banks
Banks ensure that they profit by charging you fees for everything under the sun. Also, while opening an account, the minimum balance requirement must be of a considerable amount.

The Verdict: Credit Unions

– ATMs and Branches

Credit Unions
Credit Unions have limited resources like ATMs and a handful branches.

Banks
Banks have a large number of ATMs and branches present at different locations.

The Verdict: Banks

– More Money in Account

Credit Unions
They may have restrictions about the amount of money members are allowed to deposit.

Banks
There are no such restrictions about depositing money in banks.

The Verdict: Banks

– Prime Focus

Credit Unions
They put ‘people over profits’.

Banks
They put ‘profits over people’.

The Verdict: Credit Unions

– Restrictions

Credit Unions
As they are small institutions, credit unions may be traditionally inclined, and have lot of restrictions when it comes to giving membership, deposits, etc.

Banks
Banks are large and influential, and profit-oriented in their approach. This causes them to have lesser restrictions.

The Verdict: Banks

– International Reach

Credit Unions
Credit unions generally have a local reach, and may not be present at international locations.

Banks
Banks are present everywhere, and have a wide international reach. Even when you go abroad for a vacation, you know that your bank will have a branch there.

The Verdict: Banks

– Having a Say

Credit Unions
Members have the right to run for election of the board. Irrespective of the amount of deposit, members can run for election as well as cast a vote. They can also voice their opinions.

Banks
Customers do not have a voting right. Only stockholders can vote, based on the number of shares they own. Selection of new directors is often done by current directors, or by a large block of stock acquisition. Customers cannot make suggestions or bring about changes in the operations.

The Verdict: Credit Unions

– Board of Directors

Credit Unions
Members who volunteer to become Board of Directors are chosen after an election. One is not paid to serve on the board.

Banks
The board members of a bank are paid, and may not necessarily represent its wide customer base.

The Verdict: Credit Unions

– Membership Focus

Credit Unions
Credit unions want to work for the benefit of the members. They focus on consumer loans, savings, and providing quick and good services to members.

Banks
Banks work to earn profit and not for the benefit of the customers. Hence, they focus on commercial loans, accounts, and services that help in multiplying the income for the bank.

The Verdict: Credit Unions

– Resource Sharing

Credit Unions
Credit unions share their resources like service centers and ATM centers for the convenience of the members.

Banks
The cut-throat competition among the banks does not allow them to share their resources.

The Verdict: Credit Unions

Some credit unions also offer several contests and perks which give the winners prizes with financial benefits, and even dividend payments in certain cases. However, due to their small size, they do not have the influence and power enjoyed by banks on a federal scale. It also becomes difficult for them to handle large-scale business clients. Now that you know about the pros and cons of credit unions and banks, make your investment decision based on your requirement.

Things to Consider Before Applying for a VA Loan

A VA loan is a mortgage loan established by the United States Department of Veterans Affairs for providing home loan benefits to veterans, active servicemen, surviving spouses, and their families. This does not mean that the VA gives out the loans. The loans are provided by private lenders, while the VA guarantees a certain part of the loan. This helps get better cost benefits and terms of repayment. Also, as they do not have mortgage insurance, you are able to save a lot of money every month. Remember that these are not one-time loans; in fact, these loans are reusable and you can avail another, once you pay off the earlier one. The best part about this loan is that if you fail to pay your mortgage, the VA will step in and negotiate with the lender for better terms. Also, pre-payment of dues does not attract any penalty. Hence, because of all these benefits, availing this loan can be very advantageous for you. However, you must know certain things before you plunge into one. For example, there is an occupancy rule which is applicable to the VA loan.

Things You Should Know Before Applying for a VA Loan

✧ Primary home will get preference over your second home.
In all probability, lesser important loans for second home, vacation homes, and beach houses which will not be occupied by you, may not get approval easily. The main purpose is to cater to the housing requirements of the veterans or their family. It does not support giving away loans for additional homes which are more or less a luxury or investment-oriented. Hence, do not forget to mention that you will be occupying the house after a short duration of time. Also, they are usually given for a single home, and a fixed upper home or working farm may not get approved for the loan.
✧ Civilian co-borrower’s share of VA loan will not be VA guaranteed.
If you want to apply for a joint loan, you are entitled to do so. However, if you are a veteran and your co-borrower is a civilian, the latter’s portion of loan will not be guaranteed by the Department of Veterans Affairs. However, the VA will guarantee the loan if the co-borrower and you were previously or currently recruited in the military. Your spouse or another veteran will be acceptable co-borrowers. Remember that in joint VA loan applications, the civilian co-borrower will have to complete a number of formalities and submissions to the lender. This may include his income, tax documents, credit report, details of any other property owned with the veteran, etc.
✧ Your credit rating will impact your loan.
Although the Department of Veteran Affairs will not exercise a credit score requirement, lenders are on the lookout for a credit score that is 620 or higher. Like the other types of loans, it is important that you have a good credit score for availing the benefits. As the lending institution will go through your credit history, it is important that you ensure it is in good condition. Ensure that you do not open any new credit accounts and pay your bills on time. Veterans who are deployed on work to distant locations have support networks who can help them pay their bills. Hence, do take help of this support and laws. It is advisable that you get a copy of your credit report with all the three agencies and correct any errors in it.
✧ Getting preapproval for your loan will save a lot of time.
It is advisable that even before you start house hunting, apply with the lender for a preapproval. This will help you in three ways: (i) you will understand the limit of the mortgage loan for which you will be qualified, and hence, restrict your house hunt within that range; (ii) it will also help understand about the interest on the loan and whether you will be able to afford the same; (iii) you will also be able to work on enhancing your credit score, if your loan’s preapproval is rejected. This will give you a buffer to work on your credit and reapply once it is within the required range. Just imagine, if you apply for a loan directly after hunting a house and get rejected for the same, you will regret it.
✧ Having a Certificate of Eligibility and DD Form 214 is a must.
You require two of the most important veteran documents. You will need to have a Certificate of Eligibility (COE) for proving that you are eligible to avail a VA-backed loan. It will not only qualify you to avail the loan facility, but will also tell your lender that you have met the necessary stringent prerequisites set by the VA and submitted the necessary evidence to prove the same.
– The form for this is available at the eBenefits portal on benefits.va.gov.
– You also have the option of applying through your lender through the Web LGY system.
– Spouses will have to apply through VA Form 26-1817 and send it by email.
– Similarly, DD-214 is a document that is handed over to a veteran while leaving military, and helps him to claim the benefits associated with it. Hence, you will require a DD-214 which will act as a proof for your military service. You can apply for this form at the National Personnel Records Center (NPRC).
– If you are still in active duty, you will require a statement which needs to be duly signed by your unit commander. You will also have to submit the names and contact details of your employers for the last 2 years.
✧ You can avail loans in spite of bankruptcy.
Many people face bankruptcy these days owing to reasons that are beyond their control. For example, death or sickness of a family member, loss of job or income, divorce, etc., can cause a person to file for bankruptcy. However, if you have filed for bankruptcy and are wondering if you will still qualify for this loan, the answer is a Yes. All you have to do is wait for two years from the discharge date of your bankruptcy to avail the benefits of the VA home loan. If the Department of Veterans Affairs believes your reason of bankruptcy was genuinely out of your control, it will reduce the term of 2 years for you. In the meanwhile, ensure that you rebuild your credit and have a stronger financial position. Remember that even if your VA loan was foreclosed previously, you are entitled for the home loan benefits.
✧ There is an occupancy rule which you will have to follow.
According to this rule, the primary VA loan borrower will have to shift into the house within the reasonable time which is mostly 60 days after the loan is closed or the house is completely built. You should not delay occupying the house by more than 12 months. If a person is deployed to a distant location, his spouse is the only relative who can occupy the home. You can show a record of continuous residence by providing the bills of various services.

Remember that a VA loan comes with a funding fee, which will be approximately 2% of the loan amount. Ensure that you have the right debt-to-income ratio, important documents, and a good credit score in order to gain the maximum benefits.