Using more than one property to meet your borrowers cashout refinance requirements
Using cross collateral is a frequently overlooked financing strategy for borrowers in need of more cash than the equity in a single property will allow. Many brokers are not familiar with using more than one property to acheive a borrower's refinance objectives. This is not common because most conventional lenders do not allow using more than one property to secure an individual loan. The reason for this is because conventional lenders securitize their loans i.e., they pledge them to a pool of loans that is sold to the public in the form of shares. Cross collateralization is not a common practice in the world of securities. However, hard money lenders are not restricted by the requirements of Wall Street. Most hard money lenders porfolio their loans i.e., they hold them and service the loans until maturity. As a result, hard money lenders can look to more flexible and creative financing strategies than a conventional lender.
A Cross Collateral Case Study
For example, a borrower had 3 residential investment properties with combined market value of $1,200,000 and total exising mortgage liens of $500,000. Property 1 = $300,000, Property 2 = $400,000 and Property 3 is $500,000. The borrower needs $100,000 total cash out to payoff a large IRS lien and a judgement. Because not one of the properties has sufficient equity to satisfy the cashout request, a traditional bank or subprime lender cannot satisfy this request.
Using all of the properties as cross-collateral, the borrower can obtain one loan for $650,000 with a single note secured by a trust deed encumbering all 3 properties. The borrower now has one payment to make on all 3 properties and the broker has provided more than the $100,000 needed to satisfy the loan request.
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