For mortgage brokers, success is contingent on building relationships. Those who are venturing off on their own for the first time may wonder if there is a formula for mortgage brokerage success.
While there are no surefire solutions, offering unique, flexible products that meet customer needs provides a great way to grow client lists, increase profits, and scale. But what types of products can private lenders offer to differentiate themselves from traditional lenders and other brokers?
Enter business purpose loans.
Less Bureaucracy, More Freedom: Business Purpose Loans for Real Estate Investors
Not to mention, following the 2008 housing market crisis, government and institutional oversight ramped up. In 2011, Congress introduced the Consumer Financial Protection Bureau (CFPB) and passed and applied multiple laws, like the TILA-RESPA Integrated Disclosure (TRID), to consumer mortgages.
TRID is a combination of two separate laws:
- The Truth in Lending Act, or Reg Z, monitors the fees and expenses involved in mortgage loans.
- Real Estate Settlement Procedure Act, or RESPA, relates to the time, fees, and expenses involved in the purchase of real estate.
While the CFPB and TRID help protect the market and homebuyers, they also:
- Further slow down loan processes
- Put more burdens on lenders
- Make it more difficult to approve loans
These hurdles make traditional consumer loans an impractical option for real estate investors looking to fix and flip properties–who require speed and flexibility to succeed.
Business purpose loans–or commercial loans–on the other hand, are specifically designed to fund the purchase and rehabilitation of investment properties by non-owners. These types of business loans, like bridge financing and fix and flip loans, are much more flexible and accommodating to investors. This includes investors with less than stellar credit or who have money tied up in other properties.
Does TRID apply to commercial loans? The answer is no. With business purpose loans, lenders and brokers face less bureaucracy and oversight. In fact, most states do not require brokers to have a mortgage license to originate real estate investors.
Business Purpose Loans Through Private Lenders
Let’s discuss some of the benefits of acquiring business purpose loans through private lenders:
Multiple Options to Fit Your Needs
Private lenders can provide an array of business loans to meet your specific project’s needs, including:- Fix and Flip Loans
- 1 – 4 Unit Bridge Loans
- Rental & Rental Portfolio Loans
- Ground-up Privately Funded Construction Loans
Flexible Terms
Unlike stringent bank loans, private lenders have the flexibility and freedom to tailor loans to meet a project’s unique needs or work with substandard credit or a lack of liquidity.
Fast Approval
Quick loan approval processes allow investors to outpace their competition and capitalize on properties quickly.
Control Over Sale Price
Low-interest business-purpose loans for investment properties cover the construction, repair, and purchase of a property. This enables investors to sell properties at lower prices while still turning a substantial profit.
Types of Properties
- Non-owner occupied
- Attached or detached Short Family Rentals (SFR)
- 2 – 4 unit properties
- Townhomes
- Warrantable condos
- PUD
No Prepayment Penalties
Banks and credit unions often penalize borrowers for paying off loans before they mature. Private brokers, on the contrary, have the power to eliminate prepayment penalties and encourage quick repayment.
Eligibility for Low Credit Borrowers
Rather than obsessing over credit scores and down payments, private lenders take Loan-to-Value (LTV), Loan-to-Cost (LTC), and After-Repair-Value (ARV) into consideration when determining business-purpose loan eligibility.
This offers mortgage brokers more avenues to say “yes” to borrowers–regardless of less optimal credit or the lack of a down payment.
Table Funding
The private lending market was once a Wild West of
While the private lender sector is less regulated, dicey and unstructured lender approval processes with minimal checks and balances left many lenders vulnerable to violations through the Home Mortgage Disclosure Act (HMDA). HMDA’s purpose is to ensure banks and lending institutions follow fair lending practices.
That is until established capital providers like CIVIC introduced structure, discipline, and the benefits of institutional capital to the private lender sector through table funding programs.
CIVIC’s Third Party Originator (TPO) Program offers a white-label table funding solution that helps you grow your business with reduced risk. By participating in the TPO Program, mortgage brokers can utilize industry experts, gaining valuable insights into the loan origination process as well as loan performance.
In addition, mortgage brokers receive:
- White-label documents & portal access for all loan officers
- Control over deal pricing
- Direct access to processors and underwriters
- Free credit and background checks
- A unified overview of the entire loan pipeline
Clients also benefit from CIVIC’s TPO program. With limited platform access, borrowers have:
- The ability to order draws, extensions, and payoffs
- More transparency throughout the loan process
CIVIC’s TPO team operates entirely behind the scenes, with documents and loans funded in your name. It’s your loan, but with CIVIC’s capital, resources, and risk-taking.
With table funding programs like CIVIC’s TPO, brokers save time and have the liquidity available to explore more ventures. With the right capital partner, mortgage brokers can provide better service to their clients, allocate more funds to other aspects of the business, and have more peace of mind as they grow.
