Archive for

An Overview Of The Types Of Loans Available

A loan is a sum of money or other variable that an individual or a company borrows from another individual or a company with the condition of repaying it with time. Often the loan amount has to be repaid with a sum of interest rate that marks as a security for the lender of the loan. Loans are required by those who do not have the financial affordability to purchase something with their own money. The financial institutions help such people by legally financing their purchase and helping them realize their dream. Thus it is a financial aid that is immediately provided to the people with monetary need to help them buy a property or a car or any other thing. If you’re a resident of the UK and you want to know about the various kinds of loans available in the UK, this article may help you out.

The types of loans in the UK

  1. Bad credit loans: Today’s credit lending industry, throughout the world is based on the credit of a person. As there are huge numbers of defaults throughout the UK, the lenders first test your extent of credibility by verifying your credit score before lending you a loan. Have you ever thought how a person with poor credit score would get approved for a loan? Well, the bad credit loans would perhaps help them out. Getting a bad credit loan is ideal when you want to raise a lump sum amount of money and you do not have a high credit score. These loans will be lent to you without checking your credit score but you need to have equity in your home in order to obtain such loans. This will be used as collateral so that the lenders can sell it off in case you default on your loans.
  2. Bridging loan: A bridging loan, as the name suggests, is a type of loan that is used to bridge the gap between a particular purchase and sale. For instance you’re selling off your old house and buying a new property. You can take out a bridging loan that is usually a short-term loan to buy the new property. You’re liable to repay the loan as soon as you get the proceeds from selling off your old property. The commercial or residential property is usually used as collateral for getting such a loan.
  3. Car loans: Car loans are simply taken out by a prospective car-buyer who needs a lump sum amount of money to purchase it. There are two types of loans that you can obtain on a car, like the secured and the unsecured ones. If you take out a secured car loan using collateral, you’ll get to pay low interest rates on the loan. Repayments will be made easier by this kind of loan and it will suit your financial needs. On the other hand, an unsecured loan carries a higher interest rate as there is no collateral in this loan.
  4. Home loans: Home loans are taken out by prospective home buyers to purchase a home and soon get you out of your rented property. It will help you purchase a home of your own and build up your home equity as soon as you start making repayments on it. Getting a loan requires having a good credit score as the lenders usually demand a highly creditworthy person who has no chances of defaulting on the loan.

Thus, if you have been looking for information on the types of UK loans, you must have known what they are by going through the concerns of this article. Consider the above mentioned loans and weigh their benefits before taking them so that you can take a wise decision while seeking financial assistance.

Loan Repayment

Loan repayment can seem to be a difficult thing to undertake at times. Unfortunately, securing a loan for your needs may be the best option to achieve your goals. Whether your goals include schooling, business expansion, or even home expansion, in order to get the money required to achieve it, you may have to apply for a loan. This means undertaking a loan. However, it may not be as hard as you currently think it is. There are many options that make loan repayment as easy for you as possible, depending upon many factors. Most of the time, it will narrow down to exactly what type of loan you secure.

When it comes to education, most Americans these days can not afford to pay the cost of tuition. They find themselves in a situation where they have to either give up on their dreams of higher education or get a school loan. The loan repayment process on a school loan can actually make it much easier to handle than most other loans. In general, most school loan plans allow the student to go to and finish their schooling. They won’t even begin to expect any repayment until sometimes 6 months after the student has completed schooling. This gives you the chance to use the education you received in order to find a job that is in your given field of study, which it is generally assumed, will be of higher pay than average jobs. This allows you to prepare for a loan, rather than just having to jump right into it.

A home improvement loan has a different set of loan repayment options. Home improvements usually add to the value of the home, which can increase the value of the homeowner. In order to secure a home improvement loan, it may be a good idea to try for a mortgage loan. This way, any other loans you have against the house will be grouped together, making the repayment a single payment. If you go this route, you may find that you add much less per month than you would if you had a separate loan. The good thing is that if you do improve the value of your home, future loans will offer much better terms. This planning for the future is an important habit to get used to.

The loan repayment options for a business loan aren’t generally that flexible. However, the advantages of a business loan can far outweigh the downside of any potential repayment issues. Because the loan is being used to start or expand a business, the implications are that the business is going to be making more money. This potential to increase profits will set you in a position to even complete the repayment process ahead of schedule. Early loan payment will usually save money, since the interest rates are negated when paying early. As an added bonus, the successful completion of a business loan will give you better rates the next time you want to secure a loan.

There are many different types of loan repayment options available to most everyone today. The type of loan you try to secure will often dictate which potential loan terms you face. School loans will often not require a loan repayment until after the schooling is completed to allow you the chance to begin earning enough to pay it back without breaking the bank. A home improvement loan can often be bundled with an existing mortgage, saving a large amount of interest. Business loans will often allow you to increase your earning potential, thus making the loan payment process much easier to handle. The best option is to choose the type of loan you need, and research the best way to secure that loan, in order to receive the best repayment options you can.

Alternative Loan Options for Residential Real Estate Investment

Conventional loans are typically the hardest to obtain for real estate investors. Some lenders don’t allow income from investment properties to be counted toward total income, which can make global underwriting a problem for certain investors, especially those who already have several existing conventional, conforming real estate loans reporting on their credit. In these cases, the investor must look outside conventional funding for their investments. Two of the more popular choices for alternative financing are portfolio loans and hard money loans.

Portfolio Loans

These loans are loans made by banks which do not sell the mortgage to other investors or mortgage companies. Portfolio loans are made with the intention of keeping them on the books until the loan is paid off or comes to term. Banks which make these kinds of loans are called portfolio lenders, and are usually smaller, more community focused operations.

Advantages of Portfolio Loans

Because these banks do not deal in volume or answer to huge boards like commercial banks, portfolio lenders can do loans that commercial banks wouldn’t touch, like the following:

  • smaller multifamily properties
  • properties in dis-repair
  • properties with an unrealized after-completed value
  • pre-stabilized commercial buildings
  • single tenant operations
  • special use buildings like churches, self-storage, or manufacturing spaces
  • construction and rehab projects

Another advantage of portfolio lenders is that they get involved with their community. Portfolio lenders like to lend on property they can go out and visit. They rarely lend outside of their region. This too gives the portfolio lender the ability to push guidelines when the numbers of a deal may not be stellar, but the lender can make a visit to the property and clearly see the value in the transaction. Rarely, if ever, will a banker at a commercial bank ever visit your property, or see more of it than what she can gather from the appraisal report.

Disadvantages of Portfolio Loans

There are only three downsides to portfolio loans, and in my opinion, they are worth the trade off to receive the services mentioned above:

  • shorter loan terms
  • higher interest rates
  • conventional underwriting

A portfolio loan typically has a shorter loan term than conventional, conforming loans. The loan will feature a standard 30 year amortization, but will have a balloon payment in 10 years or less, at which time you’ll need to payoff the loan in cash or refinance it.

Portfolio loans usually carry a slightly higher than market interest rate as well, usually around one half to one full percentage point higher than what you’d see from your large mortgage banker or retail commercial chain.

While portfolio lenders will sometimes go outside of guidelines for a great property, chances are you’ll have to qualify using conventional guidelines. That means acceptable income ratios, global underwriting, high debt service coverage ratios, better than average credit, and a good personal financial statement. Failing to meet any one of those criteria will knock your loan out of consideration with most conventional lenders. Two or more will likely knock you out of running for a portfolio loan.

If you find yourself in a situation where your qualifying criteria are suffering and can’t be approved for a conventional loan or a portfolio loan you’ll likely need to visit a local hard money lender.

Hard Money and Private Money Loans

Hard money loans are asset based loans, which means they are underwritten by considering primarily the value of the asset being pledged as collateral for the loan.

Advantages of Hard Money Loans

Rarely do hard money lenders consider credit score a factor in underwriting. If these lenders do run your credit report it’s most likely to make sure the borrower is not currently in bankruptcy, and doesn’t have open judgments or foreclosures. Most times, those things may not even knock a hard money loan out of underwriting, but they may force the lender to take a closer look at the documents.

If you are purchasing property at a steep discount you may be able to finance 100% of your cost using hard money. For example, if you are purchasing a $100,000 property owned by the bank for only $45,000 you could potentially obtain that entire amount from a hard money lender making a loan at a 50% loan-to-value ratio (LTV). That is something both conventional and portfolio lenders cannot do.

While private lenders do check the income producing ability of the property, they are more concerned with the as-is value of the property, defined as the value of the subject property as the property exists at the time of loan origination. Vacant properties with no rental income are rarely approved by conventional lenders but are favorite targets for private lenders.

The speed at which a hard money loan transaction can be completed is perhaps its most attractive quality. Speed of the loan is a huge advantage for many real estate investors, especially those buying property at auction, or as short sales or bank foreclosures which have short contract fuses.Hard money loans can close in as few as 24 hours. Most take between two weeks and 30 days, and even the longer hard money time lines are still less than most conventional underwriting periods.

Disadvantages of Hard Money and Private Money Loans

Typically, a private lender will make a loan of between 50 to 70 percent of the as-is value. Some private lenders use a more conservative as-is value called the “quick sale” value or the “30 day” value, both of which could be considerably less than a standard appraised value. Using a quick sale value is a way for the private lender to make a more conservative loan, or to protect their investment with a lower effective LTV ratio. For instance, you might be in contract on a property comparable to other single family homes that sold recently for $150,000 with an average marketing time of three to four months. Some hard money lenders m lend you 50% of that purchase price, citing it as value, and giving you $75,000 toward the purchase. Other private lenders may do a BPO and ask for a quick sale value with a marketing exposure time of only 30 days. That value might be as low as $80,000 to facilitate a quick sale to an all-cash buyer. Those lenders would therefore make a loan of only $40,000 (50% of $80,000 quick sale value) for an effective LTV of only 26%. This is most often a point of contention on deals that fall out in underwriting with hard money lenders. Since a hard money loan is being made at a much lower percentage of value, there is little room for error in estimating your property’s real worth.

The other obvious disadvantage to a hard money loans is the cost. Hard money loans will almost always carry a much higher than market interest rate, origination fees, equity fees, exit fees, and sometimes even higher attorney, insurance, and title fees. While some hard money lenders allow you to finance these fees and include them in the overall loan cost, it still means you net less when the loan closes.

Weighing the Good and the Bad

As with any loan you have to weigh the good and the bad, including loan terms, interest rate, points, fees, and access to customer support. There is always a trade-off present in alternative lending. If you exhibit poor credit and have no money for down payment you can be sure the lender will charge higher interest rates and reduce terms to make up for the added risk.

When dealing with private lenders make sure to inquire about their valuation method.

Also, with hard money lenders, you should be careful in your research and background checking. While hard money loans are one of the more popular alternative financing options, they are often targets for unscrupulous third parties. Before signing any loan paperwork make sure to run all documentation by a qualified real estate attorney and/or tax professional. If you suspect fraud or predatory lending contact the state attorney general office.