Getting Beyond 100% Financing

Do You Have Any 100% Financing Programs?

This is the question I am asked more than any other by investors.
So I’ll begin this post with my position on 100% financing.

First of all, 100% plus financing is still available in the post credit crunch era.
100% plus financing can be achieved with the right property and under the right conditions.

Let’s me give you the inside scoop first and we’ll build from there.

There a 2 games that are played in the financing markets and these games are in operation at almost every financial institution. There’s a “Inside Game” And A “Out Side Game“. You success in achieving high leverage financing depends on which game you are playing and how well you understand the game.

The OutSide Game
This is where you will find the standard loan programs posted. Here is where 99% of the loan applicants apply for loans. You’ll receive the basic terms and the standard loan processing. There usually isn’t any creative financing options beyond negotiating rates. This is you standard boiler plat financing that is offered to the general public.

The Inside Game
There is another game that is played by insiders. This is where very creative and exceptions to the general rules are made. It is here where you will be able to achieve terms and exception that the general public does not have access to. As one of my associates put it.” It pretty hard to play a game that you don’t know exist”.

There are no invitation issued but there certainly is a process to getting in the game room.

Step1

Submit your project to your funder and get some type of approval. If your funder will approve your project at 70% LTV, you can begin the process. Never attempt or ask for 100% financing initially. That’s a novice move and your funders will tell you. “Sorry, we don’t have any 100% financing programs”. So the first thing to alway remember is to get your project accepted FIRST and then negotiate Secondly.

Step 2
Make sure your property will still be within the required DSC ratios.

DSCR

No lender will discuss financing beyond the standard requirements on a negative cash flow property.
So the numbers must work and the cash flow has to be there.

The easiest way to meet the DSCR is to make sure that property has a high enough Capitalization Rate.
Divide the net operating income by the sale price to get cap rate.

Let take a close look at this “Cap Rate Calculation”!

Net Rental Income
—————
Divided By The Purchase Price =  Cap Rate

Step 3: Appeal To The Lenders Greed
We appeal to the lenders greed by offering front and back end equity in the property beyond the the mortgage. If we were offered 80% financing, we would offer the lender 25% equity every month and 25% equity in 5 years via a refinance or a sale of the property.

Step 4 Remove All The Lenders Risk Exposure

You must address the lenders concerns and remove 100% of his risk exposure in the financing.
What are the Lender’s Risk?

1. The Risk Of Foreclosure:
   We eliminate this risk by Offer the Lender a Quit Claim Deed At Closing
   
2. The Risk Of You Collecting The Rents And Not Making The Payments
   We eliminate this risk by using a 3 rd Party Escrow service combined with an
   Estoppel letter.

What is an estoppel letter?
An estoppel letter is typically used in a transfer or conveyance of real property before the Closing transaction.

If we are more than 45 Days late with our payments, our lender simply records the Quit Claim Deed and avoids any foreclosure proceeding and side steps any Bankruptcy filings. The property can go to the lender with a simple recording of the quit claim deed in lieu of the foreclosure procedures.

Pay your monthly mortgage by using a  “lock box” service to give the lender more comfort and to eliminate the lender’s risk completely. (Solver The Trust Issue) You are paid last. The rents never come to you. The management company makes deposit into the Lock Box account. The 3rd part service pays the mortgage from the same account.

By using a “Lock Box”, we never receive the rents. The rents go to the “lock box” and the ” lock box” trustee pays the mortgage and forwards the balance of the rents to us minus the monthly lock box fee.

What Is A Lock Box?
It is a service provided by banks and title companies to receive payments. By using a “lock box” service, the management company send the payments to the lock box instead of sending them directly to me. Our Book keeper received the payments from the lock box, makes the mortgage payment, collects his fees and send the balance to where I instruct him. This remove the lender concern about me receiving the payments and not paying the mortgage. By using the lock box, the lender is assured of being paid first.

For the Lender, we have reduced all of his exposure 100%.

We’ve reduced the foreclosure risk and the non- payment risk. Additionally,
we’ve increased his return on on his investment .

For us, we achieved 103% financing and a tax free rebate at closing.
To view this actual case study with all the numbers and more details,
click here to get the full report.

Durante