Most of us have done at one time or another: money lent to a friend or family member. The loan is made to help a loved one or to fulfill a goal to care for a pressing need. We chose the loan of money because we want to help. Unfortunately, too often the extension of a personal loan could lead to a negative situation. Here are some points to consider when faced with the possibility of floating a loan to someone you care about.

What happens is that loans of money, obviously, the recipient does not have the resources at hand to effectively address the issue at hand. That is why we have been approached about the personal loan. It is important that you have an understanding about the capacity of the recipient to pay the loan in a reasonable time. The payment schedule must be discussed in detail the terms of repayment should be very clear to both parties. This is done so that the operation can be done according to the perimeters that you and the recipient can have confidence must be met in a timely manner.

Although you may feel that asking for some kind of documentation of the loan and the repayment agreement is not appropriate to the circumstances, it is important to remember that you are making a financial transaction. The documents are intended to protect both the lender and the receiver. They should spell out the amount being borrowed, and repayment terms, including any delays that may apply. If your loved balks at this kind of agreement, you can take this as a warning signal that you should think hard before going through the credits.

It is also important to take into account their own circumstances, before agreeing to loan money. Can you afford to make the loan without any financial problems for you and your family? Its first responsibility is their own duty, then using any surplus that may have to help those around you. Make sure that by extending a personal loan you will not soon find the need for a loan.

In conclusion, ask yourself a question: If the personal loan can not be repaid on time, or perhaps not at all, how would that affect the relationship? The money has been the downfall of many a marriage and friendship. If the relationship you share with the receiver is something we want to keep, that the enlargement of a personal loan should be something to do with the conviction that if the loan can not be reimbursed you will not allow that fact to create negative feelings to that person. Be very sure you can actually perform such a determination before the enlargement of the loan.

Lending money to help a loved one is a generous gesture. Make sure your gesture does not give rise to resentment in the event of an unexpected obstacle coming.

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Over the past 18 months or so, maybe longer, the mortgage origination industry has seen significant change. Most of our competition is gone, but so are the programs and lenders that provided so much of the money homeowners and homebuyers needed. With those programs gone, we originators are left to re-tool our kit and get out there and keep originating - or quit, I guess.

For me, when it came to re-tooling, I tried everything, and as I became comfortable - there was change. Whether the sources dried up, or underwriting guidelines tightened - whatever it was it seemed like I was constantly re-tooling - and my volume of production slipped by 80%! Because I have been doing this since the late 80’s - I simply had to find a new niche, a new way to grow my business and support my family. What was I going to do?!

When I started in this business, back with thermal paper fax machines (anybody remember those?!), there were really only 2 kinds of loan programs, government or Savings and Loan money. I stayed away from the government stuff, heard it was too hard and took too long and the government limited origination fees to just 1%, so I stayed with the S&L stuff. Now, with S&L’s gone and WallStreet money still not back yet - seems like the old days are here again - with the major focus on FHA loans!

I have seen statistics that expectations for FHA are in the range of growth near 1000% - seems as thought this time, I am not going to miss this wave! So, I read all I could, I even purchased some great training and reference manuals to ensure my understanding - and then I went out to originate. Although the learning curve was steep, I am now back to production levels I haven’t seen since the refinance boom of 5-7years ago. Although the numbers are similar, the revenue is not! Yes, it is true that origination fees are limited, but to encourage the use of these products, seems that YSP (yield spread premium) is what will fuel the economics of this new wave of FHA loan production.

Don’t miss it this time, learn all you can - the guidelines are strict - but with the millions of homeowners needing help our of those payment option arm, and high rate subprime loans pending their next adjustment - there is quite a demand for our services. Remember, there will always be a need for home loans, we as mortgage professionals just need to be ahead of the curve and ride the different waves of the market to serve our clients and earn our living - don’t quit, just do your homework, and ride this FHA wave!

Anyone who is in this business and is not making FHA loans, should learn how to get yourself or your company FHA approved.

To learn how, Download this: How to Get a FHA License

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Traditional bank and institutional lending has become outdated in some respects and does not always meet the needs of potential commercial customers. Private investor funding has filled many of the gaps while making investing easier and profitable for all parties involved. Although private funding is not actually lending by definition it is still a highly viable alternative.

The typical traditional bank loans take 3 to 6 months to close. The obvious constraint is if your deal needs to close before 3 months or if the seller is anxious to close in a fast time frame. Private funding typically takes 30-90 days to close and the right mix of information, opportunity and right-time-right-place has seen private deals close in a manner of days!

Most commercial lenders have very specific guidelines on documentation of the source of income or proof of asset ownership. Obtaining these documents from the current owner(s) is a big challenge if not impossible. Tax returns and additional personal information are sought but few are willing to open up their finances to just anyone. Private investors tend not to look at past performance of the property but seek a good analysis of what the future potential is. Be prepared with a sound business plan!

Many borrowers cant qualify for traditional commercial loans if they have existing high business expenses. Again, existing financials need to be examined by the bank to determine if prior performance indicates worthiness for the loan. This time its your financials under the microscope. This type of information is useful in proving yourself to private investors but not required.

Special business properties such as mobile home parks, restaurant /bars, cash businesses, new development construction projects, nursing homes, assisted living centers, etc. may be outside of the traditional lenders interest. The reasons differ but are often related to the perceived risk or lack of knowledge about the type of investment. Again, private investors are more interested in your plan and its soundness rather than the category of property.

Relative short balloon payments on special purpose business loans are fairly common with traditional loans, some due in as little a 3 years. If your business plan does not specifically show how returns on the profitability of the property will support the balloon payment the loan is often denied. Private funding may also have balloon payments but you can always seek a different structure that fits your needs and plan rather than trying to plug your plan into an institutions way of doing things.

Assumability of the loan is not often offered with commercial loans. If your plan for the property includes later selling it for a profit you need to consider how potential buyers will finance the purchase from you. If you cannot transfer the loan to a qualified buyer you will be at the mercy of them obtaining a loan from an institution and meeting all of their requirements. This is time consuming and costly for the borrower creating a delay in you moving on. Conversely, private funding can often be structured so that you may transfer your existing agreement to another without any of the constraints.

Banks and lending institutions often monitor their investments by requiring ongoing financial reporting requirements. Although they are not a partner in your venture they behave like they are. Until you break free from the loan this monitoring relationship will continue. Private funding investors may also require periodic financial reports but as long as the agreed terms of the funding are being met they may have little interest.

Some institutional lenders still require the borrower to live in the same state as the property. In todays realm the reasons for this requirement are lost. Legal issues may be a bit easier to deal with because of the requirement but not enough to limit the borrowers to properties in their own state.

There are many more differences between traditional loans and private funding. The differences usually favor the non-traditional private funding world. You may pay slight more for private funding overall but if you cant qualify for a traditional loan, or the timing will not work you should not even consider cost when comparing the two options.

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