Your Private Mortgage Travels Far and Wide

[Matthew Crivelli]

Ever wonder why institutional lenders have hardline qualification's when it comes to, credit scores, cash on hand, property valuations and location?

The Reason behind this is because once your loan is originated it gets sold once maybe twice. Your lender will lend money to say 100 investors, then the loans are packaged together and sold either directly to hedge funds or to a mediator between the two parties as MORTGAED BACK SECURITIES. 

The lender does this to off set risk and the hedge funds do this to make interest on the notes. If the lender started originating loans that don't fit the hedge funds box they cant get the debt off their books and are stuck holding all the risk. So next time you find yourself calling 10 different private lenders and keep getting the same answers you will now know why. Your deal doesn't fit the box!

What are these hedge funds looking for?

1. The property can't be rural (urban or suburban only)

2. $100,000 plus property valuation 

3. Credit score 620 + (The higher the score the more leverage you can expect)

4. Cash reserves (can't sell notes that are at high risk of defaulting)

5. Property has to be held in an LLC 

These qualifiers are to protect everyone involved and keep the wheels turning. If hedge funds stopped buying the notes the whole system of private money would grind to a halt. (We saw this in March of 2020 for a short time)