For well-qualified, experienced fix-and-flip remodelers, originators should seek lenders that offer an LTV
of 90 percent and AR LTV of 75 percent.
The world is flat, and it is becoming flatter as technology progresses and the ranks of the middle and
upper classes explode in many countries. Foreign buyers account for 8 percent of the existing-home purchases in the United States, according to the
National Association of Realtors.
With this understanding, multiple loan solutions
for foreign borrowers are necessary. This includes full-documentation, asset-depletion, debt-service-coverage ratio and no-ratio mortgages. It also is important
that foreign buyers do not have exhaustive
Yet another category is a mixed-use product —
typically involving a combination of residential, retail
and/or office properties. There are considerable
business-development opportunities for mortgage
originators who have a comprehensive loan-product
debt-service-coverage ratio (DSCR) and no-ratio loans.
DSCR is calculated by dividing net operating income
by total debt-service costs. Lenders have different
requirements for DSCR loans, but generally it is best
to work with one that doesn’t discount the rent for
either expenses or vacancy. It also is important that
the DSCR calculation consider the interest-only payment (if elected).
No-ratio loans do not consider DSCR (and hence
“no ratio”). The loans are easier to qualify for relative
to DSCR; however, because of the increased risk, the
rates tend to be higher and the LTVs lower. Both the
DSCR and no-ratio loans should allow for gift funds.
Fix-and-flip and foreign nationals
Fix-and-flip financing targets investors who purchase
homes, rehabilitate them and sell them for a profit.
Some 5 percent of single-family and condominium
purchase transactions involve fix and flips. So, there
is significant opportunity for originators who understand and market this product. The key factors when
evaluating fix-and-flip financing (other than pricing)
are loan-to-cost (LTC) and as-repaired loan-to-value
(AR LTV) ratios.
There are many factors that determine the maximum LTC and AR LTV. Those include, but are not limited
to, the experience of the borrower with remodeling
projects; the significance of the rehab job (e.g., light,
medium or substantial renovation); and FICO scores.
offering represented by the other solutions detailed
in this article.
In addition to business-development returns being
enhanced through specialty lending, these offerings
also protect existing referral-partner relationships.
If an originator does not have access to these products,
another competitor likely will, and that’s who your
existing referral partners will turn to when the need
arises. Such a scenario will likely lead you to lose business — and possibly even referral relationships.
That would result in an already challenging business environment becoming a virtually impossible
environment in which to achieve success. Developing
a solid specialty residential lending strategy will prevent originators from being thrust into this undesirable
situation and, consequently, from drowning in a sea of
lending sameness. n
<< Sameness continued from Page 110 “If an originator does not have access
to these products, another competitor
likely will, and that’s who your existing
referral partners will turn to when
the need arises.”