Chapter 6 - Loan Underwriting

The underwriting discipline of the lenders is one of the single most important elements when investing in a trust deed. The reason why loan underwriting is so significant to trust deed investing is because part of the underwriting process is to determine the Loan-To-Value Ratio (LTV).

The process of underwriting is what the lender goes through in order to qualify a borrower for a loan, and also makes certain that the loan has been properly documented and structured. The LTV if often determined though the comparison of the loan amount to the appraised value regarding the collateral that secures the loan.

Throughout a loan transaction there tend to be far fewer problems when a loan has been properly underwritten. However, if problems do arise, the borrower is encouraged to set them right should they wish to protect their equity in the project. Almost any problem can be rectified; its only a matter of money.
In the event that the borrower fails to solve their problems, regardless of the reason, the loans margin of equity proves to be helpful as it enables the lender to absorb the cost to solve whatever problems have occurred.

Loan-to-Value


The loan-to-value principal is what makes carrying a high yield with a trust deed investment secure. The reason is because LTV means to loan a percentage of money that is less than the actual property value. When it comes to real estate lending, LTV is the single most important element, because an adequate LTV protects the initial investment, while a remaining cushion of equity helps to pay off any unexpected costs that may occur.

When it comes to loan-to-value ratio, the goal of an investor should always be to try and keep the LTV at the lowest possible amount. For instance, a good rule of thumb that every investor should follow is to never have an LTV higher than 70%. Remember, the lower the number, the more equity the investor will receive on the property. For the most part, when lenders need to analyze a loan situation, they generally rely on appraisals in order to determine their loan-to-value ratio.
Borrowers

Another important aspect of the underwriting process is finding out how the borrower intends to refinance the loan in regard to the loan terms that have been specified in the promissory note. Typically, a lender should want to conduct business with a borrower who has a decent record.

The following is information the lender should take the time to find out about the borrower before distributing a loan, so that the loan can be underwritten accurately

The address of physical property description. This includes the square footage of the land, the description of the building(s) or improvements, operating statements, rent rolls and income property.

The property preliminary title report

If it is a purchase, find out the purchase agreement

Confirmation of the zoning letter issued by the city/county that confirms the zoning for the property.

The corporate papers of the borrower

Phase one environmental report

If the loan happens to be funding a construction or rehabilitation project, the lender will also want to obtain the following criteria:

Breakdown of the construction cost

Agricultural and engineering plans that have been fully approved

Description and site plan of buildings/improvements on the site

California Trust Deed

Furthermore, in-house counsel will start foreclosure within 24 hours after a default has occurred on the loan.

What is the Mortgage Investment Yield? Regardless of the term used, the closing of escrow is when all of the final papers are signed, and the closing officer is prepared to record the deed to the property, and the sale goes to the seller. That being the case, it is in the investors best interest to loan through a third party that has the experience to deal with problem borrowers. Chapter 14 - Frequently Asked Questions Since you are new to mortgage investing, you may have questions in regards to what it is, what it can do for you, and if mortgage investing is really worth it in the long run. The third party should be a qualified, licensed real estate broker.

Know the market value and equity of the real property, as well as your loan security.
Your check should be given directly to your attorney or the Title Company. Nevertheless, an investor may ask the advice of a broker or escrow company, and they may or may not tell the investor how a similar problem was resolved in past escrows. Understand loan servicing authority, provisions and compensation.

A certified copy of escrow papers is especially important when it comes to cash transactions where the investor wants to ensure the trail of cash is carefully documented.
When the instructions have been completed, it is then important for the investor to read the preliminary title report more than once to ensure that everything is understood and nothing has been overlooked or missing. The vast majority of loans that are funded by Coppercrest Funding are through individual investors. Take the time to establish your personal opinion regarding the value of the real estate collateral. The following are two excellent reasons why:1.