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FAQ

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FAQ

What is residential property?

The main residential property types include:

  • Single-family residences (single-family homes)
  • Condominiums
  • Non-warrantable condominiums
  • Co-ops
  • Condotels, short-term rentals
  • Townhouses (townhomes)
  • 2-units (duplexes)
  • 3-units (triplexes)
  • 4-units (fourplexes)
  • Vacant land zoned as residential
What is a residential purchase loan?

A residential purchase loan is a loan made to a borrower to finance the purchase of residential property.

The terms of the purchase loan vary according to the lender’s guidelines and the borrower’s creditworthiness (based on the 5 C’s of credit – character, capacity, capital, collateral, and conditions).

What is residential refinancing?

Refinancing entails finding a new lender (or getting the current lender) to pay off the borrower’s old mortgage balance in exchange for a new mortgage.

As such, once the borrower refinances, the old loan is paid off, and a new one is put in its place.

The most common reasons motivating borrowers to refinance are (1) to save money by obtaining better terms such as a lower interest rate (“rate and term refinance”); or (2) to take equity out of the home in the form of cash to, for example, do home renovations (“cash-out refinance”).

Other reasons to refinance may include (1) foreclosure bailout, where the borrower is in foreclosure proceedings and needs a new lender to refinance and pay off the current mortgage in order to keep the house; and (2) a divorce, where one spouse agrees to allow the other spouse to refinance and put the deed solely in his or her name.

What is non-U.S.-citizen financing?

These types of loans are for borrowers who are (1) permanent residents with a green card; (2) non-permanent residents with a valid work visa; or (3) foreign nationals whose primary residence is not in the United States.

What is a foreign national loan?

A foreign national loan is a subset of non-U.S.-citizen loans.  This type of loan is for foreign nationals whose primary residence is not in the United States, and who do not otherwise have a green card or a work visa.

What is a jumbo loan?

A jumbo loan is a type of mortgage that exceeds the limits set by the Federal Housing Finance Agency, and is therefore not eligible to be purchased or backed by Fannie Mae or Freddie Mac.

Hence, jumbo loans are also referred to as “non-conforming” loans.

As of 2021, if the loan amount exceeds the following limit by $1, then it is considered jumbo:  $548,250.

Jumbo loans are typically used for purchasing or refinancing luxury homes in highly competitive real estate markets.

Because there is more money involved, and because these loans are not backed by Fannie Mae or Freddie Mac, jumbo loans carry more risk for lenders.

In turn, lenders typically impose stricter requirements on borrowers for jumbo loans.

What is a residential investment loan?

For investment loans, the borrower does not occupy the property but instead uses the property as an investment vehicle to generate income (“non-owner-occupied”).

The most typical investment scenarios are (1) renting the property out to others; and (2) renovating and reselling the property (“fixing and flipping”).

To be eligible as a residential investment property, the property can only have 1 to 4 units. (Properties with 5 or more units are considered commercial properties, and different loan terms would apply.) 

What is non-warrantable condominium financing?

Under Fannie Mae and Freddie Mac’s guidelines, condominiums fall into two general categories: warrantable and non-warrantable.

Units in low-risk condominium projects are considered “warrantable,” and mortgages secured by such units are eligible to be purchased or backed by Fannie Mae or Freddie Mac.

However, units in higher-risk buildings (e.g., condos with higher default rates or condos consumed with lawsuits involving the association) are considered “non-warrantable”. 

Fannie Mae and Freddie Mac will not purchase or securitize mortgages secured by units in non-warrantable condo projects.

Therefore, due to the risk involved, lenders typically impose stricter requirements for non-warrantable condominiums.

What is financing despite recent credit events?

Sometimes, borrowers have recently had their credit history impaired, due to certain negative events such as bankruptcies, short sales, foreclosures, or deeds in lieu of foreclosure.

Other derogatory events include notices of default and certain loan modifications.

Lenders refer to these events as “housing events” or “credit events”.

However, despite the borrower’s negative credit history, some lenders are still willing to extend loans under certain conditions.  

What is a residential construction loan?

For individuals looking to build their own home, they’ll likely need a construction loan (sometimes called a “self-build loan”).

Compared to a purchase loan for homes that are built already, a construction loan usually comes with higher down payment requirements and higher variable interest rates – since the house doesn’t even exist yet, there is more risk to the lender.

Due to this risk, lenders will require a lot of upfront paperwork, including project timetables, budgets, and detailed floor plans.

During construction, the lender will pay the builder in installments (or “draws”) as each construction phase is completed. 

What is a residential renovation loan?

Residential renovation loan programs are specifically designed for borrowers who wish to repair, improve, or upgrade a home they would like to buy or already own.

The loan can be in the form of a purchase loan (for borrowers looking to buy a home and then renovate it) or a cash-out refinance (for borrowers who are already current homeowners looking to renovate their homes). 

What is commercial property?

The main commercial property types include:

  • Multi-family (5 units and up)
  • Mixed-use
  • Office
  • Retail
  • Industrial, self-storage, warehouse
  • Medical
  • Hotels, motels
  • Restaurants
  • Automotive, gas stations, C-stores
  • Mobile home parks
  • Day care centers
  • Assisted living facilities
  • Religious places of worship
  • Vacant land zoned as commercial
  • Beauty salons, bowling alleys,
    cemeteries, funeral homes, golf
    courses, marinas, and other
    special-purpose property types
What is a commercial purchase loan?

For a variety of reasons, it might make sense for a company to own real estate instead of leasing it from a third party.

A commercial purchase loan enables the company to do just that.

It allows the company to finance the purchase of commercial real estate (buildings, warehouses, storefronts, office complexes, land, etc.).

The terms of an owner-occupied commercial loan depend on the profitability and cash flow of the business, as well as the personal financial strength of the business owners (if they will be guaranteeing the loan, i.e., a “recourse loan”).

What is commercial refinancing?

Refinancing entails finding a new lender (or getting the current lender) to pay off the borrower’s old mortgage balance in exchange for a new mortgage.

As such, once the borrower refinances, the old loan is paid off, and a new one is put in its place.

The most common reasons motivating companies to refinance are (1) to save money by obtaining better terms such as a lower interest rate (“rate and term refinance”); or (2) to take equity out of the property in the form of cash to, for example, do renovations (“cash-out refinance”).

Another reason is the current mortgage term is about to expire with a looming ballon payment on the horizon.

Yet another reason to refinance is a management buyout, where one business partner agrees to allow the other partners to refinance and put the deed solely in their name.

What is non-U.S.-citizen financing?

These types of commercial loans are for companies that are owned by non-U.S. citizens such as permanent residents with a green card, non-permanent residents with a valid work visa, or foreign nationals whose primary residence is not in the United States.

What is a commercial investment loan?

For commercial investment loans, the borrower does not occupy the property but instead purchases and uses the property (or properties) as an investment vehicle to generate income (“non-owner-occupied”).

There are four main types of income-producing real estate: (1) offices; (2) retail; (3) industrial; and (4) leased residential (multifamily residential property with 5 units or more).

Other less common types include mixed use, hotels, self-storage, parking lots and senior care facilities.

What is a commercial construction or renovation loan?

For businesses looking to build their own facilities from the ground up, or to renovate their existing facilities, they’ll likely need a construction loan.

Unlike with purchase loans, the company does not receive the full amount of the loan up front.

Rather, partial amounts of the loan will be released in “draws” as each construction phase is completed, and the company only pays interest on the draws.

At the end of construction, the principal balance is due, which usually means the company will have to take out a new mortgage (with the completed property serving as the collateral).

However, to save the company from having to seek a new mortgage, some lenders offer construction-to-permanent loans, which means the construction loan automatically converts to a permanent mortgage after construction is complete. 

What is a commercial line of credit?

A commercial or business line of credit gives a company access to a pool of funds to draw from as needed.

Typical uses include handling cash flow gaps, getting more working capital, and addressing emergencies.

The company only has to repay pay what it withdraws, at the agreed interest rate and term.

What is debtor-in-possession (DIP) financing?

Debtor-in-possession financing (DIP financing) is specifically geared toward companies that are financially distressed and in bankruptcy.

A “debtor-in-possession” is the legal term for a company that has filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code, but is still in “possession” of the property in question.

As such, the company still needs to operate the business during the bankruptcy proceedings.

That’s where DIP financing comes in.

Usually in the form of a short-term bridge loan, DIP financing gives the company the liquidity it needs to pay its vendors and suppliers, continue its day-to-day operations, and otherwise stay afloat during the bankruptcy.

What is litigation financing?

When a company is involved in a legal dispute such as a high-stakes litigation or arbitration, it might need a loan to have access to funds during the proceedings to pay for attorneys’ fees or to eventually pay off judgments.

Litigation financing involves a third party (that is not a party or attorney involved in the litigation) providing capital to a party and/or its attorney in exchange for a financial interest in the outcome of the case.

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