First-time homebuyers lean on bank of mom and dad
Billy Lacher couldn’t have purchased his split-level home in October without a little help from an increasingly popular financial institution: The Bank of Mom and Dad.
The 31-year-old New York City firefighter and his wife put a 10% downpayment on the US$285,000 three-bedroom home, but his parents provided an additional US$20,000 (half as gift, half as loan).
Lacher’s not unusual. About a third of first-time buyers in 2011 got either a gift (26%) or a loan (7%) from their families to help finance their home purchases, down slightly from 2010, but consistent with assistance levels seen during the last decade, according to data from the National Association of Realtors (NAR).
But industry observers think the level of parental generosity is even higher, with some giving children money for home purchases so far in advance of a loan application that the gift isn’t disclosed to lenders, or, if they’ve got the resources, buying homes outright for their adult kids and setting up an after-the-fact intra-family loan agreement.
In November, all-cash buys among first-timers hit a high of 13%, according to Guy Cecala of Bethesda, Maryland-based Inside Mortgage Finance, a mortgage industry newsletter publisher and researcher. That’s up from 6% in 2009, when IFM first began tracking it. While the company’s surveys don’t ask about the source of cash, Cecala said that when first-time buyers buy outright, it’s likely their parents who are purchasing on the children’s behalf.
What’s encouraging these all-cash purchases now? Home prices are way down – with the median price in November 2011 at just US$164,200, down 3.5% from a year ago, according to NAR. Mortgage interest rates, too, remain at all-time lows. According to mortgage researcher HSH, the average rate on fixed 30-year loans fell steadily from 5.1% at the start of 2011 to 4.09% in December.
Many first-timers use FHA loans, requiring a 3.5% downpayment or 10% downpayment with poor credit, or VA loans, which require no downpayment, but are eligible only to military personnel.
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Industry observers think the level of parental generosity is even higher, with some giving children money for home purchases so far in advance of a loan application that the gift isn't disclosed to lenders. By Jane Hodges Billy Lacher couldn't have
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Private Commercial Mortgage Loans – 4 Things Hedge Funds ...
Hedge funds, mortgage pools, private equity firms and even wealthy individual investors all make private commercial mortgage loan s against income producing real estate. While these loans are not inexpensive, they can be a valuable resource to a property owner or commercial real estate investor who needs to close a deal fast or has credit or documentation issues.
Private lenders can close loans fast and with much less bureaucratic red tape and paperwork than institutions require. Securing a private loan can sometimes be the difference between making a huge profit and losing large amounts of money.
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When evaluating a loan application for private funding there are several key factors that hedge fund managers, private equity executives and other lenders look for before they agree to fund a deal. Exit Strategy
Private commercial mortgage lenders are, first and foremost, opportunistic investors. Before they will even consider getting into a deal they will demand to know how they are going to be able to get out. A borrower’s exit strategy must be well thought out and must be realistic. Be prepared to demonstrate the viability of the exit. If you are planning on refinancing into a permanent, conventional loan it will help to have lenders already lined up. If you are planning to sell the deal, you will need to have a well researched marketing plan. To get a loan closed, it is imperative that you prove to the lender that they will get their money back, with interest and on time. Equity
Hedge funds do not exist to make you money; they exist to make themselves money. Loan-to-value (LTV) ratios in the private money industry are much lower than you will find in institutional lending. The best you can expect from a private lender is 65% LTV, and that is only for properties with sufficient cash-flow. For loans on underperforming assets LTV ratios will be around 50%-60%. Protective equity must be present or private lenders will simply not be interested. Attempting to talk a private lender into relaxing their LTV requirements is a fool’s errand.