Exploring the Financing Alternatives for Real Estate Investments

Any lender outside the traditional banks is an alternative mortgage lender. Alternative Lenders are not regulated in the same way that conventional lenders are governed.

The banks have more strict rules and policies that make qualifying much more difficult, like a higher stress test to ensure the loan can still be paid in a worst case scenario. Alternative Lenders become a very useful substitute, despite the potential higher interest rates, as they are more flexible with their regulations. If you haven’t the best employment history or issues with credit, an alternative lender may be the pathway that leads you to your new property or home.

There are many types of loans or financing available which can greatly help buyers in a variety of circumstances. A few of the more common ones are bridge loans, VTB seller financing, multiple collateral, and B lenders. Its name depicts what its main purpose is, a bridge loan is a temporary short term loan until a buyer can obtain permanent financing. By providing immediate cash flow it allows a buyer to meet obligations or become bankable. VTB or Vendor Take Back seller financing makes the seller, in a sense, the lender.

There is a contract agreed upon by seller and buyer for payment terms and timeline to which they are both held accountable. VTB agreements have great benefits for both sides. For the seller, more money can be made long term and capital gains taxes can be deferred. They help a buyer purchase a property when other means of sourcing capital are not available. Multiple collateral loans are relatively straightforward. There needs to be multiple forms of collateral, like a friend or family member who is willing to leverage their property to help the buyer obtain a mortgage loan. They are similar to a co-sign that may be required upon initial credit building. B lenders, or subprime B lenders, provide unique mortgage terms and faster application periods. These options are not available from the traditional banks.

They can also provide the option to fill out the application process online. Though they are not federally regulated as the traditional banks are, they still have significant regulations to protect all parties involved.

Although the interest rates are typically higher than traditional banks, alternative lenders have much more workable terms and options. Banks are very thorough when loaning funds and therefore have a strict regimen to follow and require much information to determine creditworthiness. Alternative lenders use different and lesser information to make this distinction making the qualification process much simpler and faster. The option of smaller loans is a great advantage alternative lenders have over traditional banks. Some banks tend to turn away from loans they deem too small, as the same workload is done to fund them but less capital is made.

As previously mentioned, the alternative lenders usually have high interest rates as they are smaller outfits therefore retaining higher risk than the banks. This is one reason why alternative lenders tend to only give smaller loans, but based on credit rating larger loans can be agreed upon.

Another few ways lenders mitigate their risk is by having shorter repayment periods or having more frequent payouts. Again depending on your credit rating you may be able to negotiate longer terms. Traditional banks usually have monthly repayment schedules whereas alternative lenders can have bi-weekly or even weekly. Depending on the type of loan this may work to the benefit of the borrower as faster repayment can mean lesser interest.

To find out what type of lender would work best for you in your situation, please don’t hesitate to contact Freeway Group. We are here to help you get to your destination the best way possible. It would be a pleasure for our team to lend you a hand to get you where you want to go.