Transactional funding

14 Replies

how does tansactional funding work? Do I need to have enough money personally to cover the loan if my buyer walks? I need someone to explain this process please? Thank you

Hi Steven!

I'm in the St. Louis area as well. 

I've recently talked to two investors who do Transactional Funding.

One basically said he charges the highest interest rate at 18% but you have a good deal he has all the people in place to make sure he doesn't lose money on the deal. 

The other would loan a min of 100k but for 24 hours. Basically you had to have a seller and buyer lined up.

Buyer backing out could cause a problem but I don't see them loaning you the money without proof that the buyer is serious.

I do have the guidelines from one of the investors if you would like me to share it message me here and I can email you.

Also... if you would like to meet up for coffee sometime I'm always looking to network with others in the St. Louis area.

Manny

Originally posted by @Steven Bommarito :

how does tansactional funding work? 

Taken from best transaction funding.com

THE BASICS

A one to three day, back-to-back real estate transaction funding involves 3 parties and 2 stand alone closings.

"A" - Seller

"B" - Investor

"C" - End Buyer

"A" sells to "B"(AB Closing) and "B" sells to "C"(BC Closing)

On the same closing day or up to three days, you sell the same property to End Buyer C. These two transactions, or closings, must take place on the same day or up to three days and use the same title company or closing agent. The C end buyer's funds must already be in escrow when AB closing takes place.

@Manny Rodriguez , 18% annual interest would be $100 for 2 days on a $100K loan. I find it hard to believe that a transactional lender would lend at such a low rate. Are you sure there aren't a pile of fees associated with this? I have seen rates of 2% for the transaction ($2K for $100K) quoted frequently. Sometimes the rates will be a lower % but with a minimum charge. It isn't inexpensive but if you need the funds in order to do the deal and it puts money in your pocket there is a time and a place for this tool.

@Jeff Rabinowitz  two different lenders. 

The one at 18% was not the 24 hour loan.

There were a bunch of other stipulations but I don't remember them all.

Yes, I realize that. I suspect the bunch of other stipulations includes a bunch of fees. Nobody is going to do a deal for $100.

1-2% seems to be the typical charge for a transactional loan.  I'm pretty sure you're not getting the loan unless the buyer closing is absolutely assured, such as by having their cash already in escrow at the title company.

Usury law in MO is 10% unless you're a registered lender, that is an APR and includes points and fees required in funding any loan on a 1-4 single family dwelling regardless of who it is to or the purpose of the loan.

Some settlement agents will require settlement and use of the funds, technically to close the first transaction and at the second transaction that loan is paid off. I know some simply want good funds in escrow and they use that to payoff the loan.

1 to 2 % is what I've seen as costs as well.

Funds from an end buyer should be required to be on deposit in escrow before transactional funds may be used, if there is a 3 day right of recession funds can be on deposit over that period ready to close and the first transaction can have a delayed disbursement agreed, so that actual funding is simultaneous.

Check state laws pertaining to demand notes and amortized requirements on loans from non-registered lenders on residential properties. If you have issues you can devise a legal note and private notes or commercial notes may be allowed to have prepayment penalties if it's not an owner occupied loan. Use a strong due on sale clause that trips payoff and use a letter of instruction to the closing agent that is agreed to using the new funds for payoff.

Transactional lending can be the safest and most profitable loan, so long as you can keep the money in motion with borrowers, but usury laws can get in the way and it's not worth the effort for me in my area. :) 

Originally posted by @Bill Gulley :

Usury law in MO is 10% unless you're a registered lender, that is an APR and includes points and fees required in funding any loan on a 1-4 single family dwelling regardless of who it is to or the purpose of the loan.

Some settlement agents will require settlement and use of the funds, technically to close the first transaction and at the second transaction that loan is paid off. I know some simply want good funds in escrow and they use that to payoff the loan.

1 to 2 % is what I've seen as costs as well.

Funds from an end buyer should be required to be on deposit in escrow before transactional funds may be used, if there is a 3 day right of recession funds can be on deposit over that period ready to close and the first transaction can have a delayed disbursement agreed, so that actual funding is simultaneous.

Check state laws pertaining to demand notes and amortized requirements on loans from non-registered lenders on residential properties. If you have issues you can devise a legal note and private notes or commercial notes may be allowed to have prepayment penalties if it's not an owner occupied loan. Use a strong due on sale clause that trips payoff and use a letter of instruction to the closing agent that is agreed to using the new funds for payoff.

Transactional lending can be the safest and most profitable loan, so long as you can keep the money in motion with borrowers, but usury laws can get in the way and it's not worth the effort for me in my area. :) 

If you are using transactional funding, what is the process to already have the end buyers funds in escrow? If i have an REO deal on the table with Seller A and I have an end buyer C already lined up, at what stage in this transaction do I need to have Buyer C's funds in escrow to be able to use transactional funding. Could you please give a step by step walk through of the transaction process, id appreciate it.

@Darvin Ezell A hard money lender can provide transactional funding. You would close under your entity's nae (A-B). Then either the same day or a couple of days later, you would close on B (you)-C (your end buyer). Some investor friendly title companies might consider closing with your end buyers fund so you don't have to use transactional funding. This is however, pretty unusual but possible. 

Just keep in mind, double closing is expensive because closing costs really add up. Adding the 1-2 % transactional funding makes it even more expensive so just make sure you have a huge spread.

Originally posted by @Daniel Moctezuma :

@Darvin Ezell A hard money lender can provide transactional funding. You would close under your entity's nae (A-B). Then either the same day or a couple of days later, you would close on B (you)-C (your end buyer). Some investor friendly title companies might consider closing with your end buyers fund so you don't have to use transactional funding. This is however, pretty unusual but possible. 

Just keep in mind, double closing is expensive because closing costs really add up. Adding the 1-2 % transactional funding makes it even more expensive so just make sure you have a huge spread.

 I keep reading that i have to have the borrowers funds in escrow already before i do the first A-B close in order to get transactional funding. How does that process work? Could you please explain that for me? Thanks.

Originally posted by @Darvin Ezell :
Originally posted by @Daniel Moctezuma:

@Darvin Ezell A hard money lender can provide transactional funding. You would close under your entity's nae (A-B). Then either the same day or a couple of days later, you would close on B (you)-C (your end buyer). Some investor friendly title companies might consider closing with your end buyers fund so you don't have to use transactional funding. This is however, pretty unusual but possible. 

Just keep in mind, double closing is expensive because closing costs really add up. Adding the 1-2 % transactional funding makes it even more expensive so just make sure you have a huge spread.

 I keep reading that i have to have the borrowers funds in escrow already before i do the first A-B close in order to get transactional funding. How does that process work? Could you please explain that for me? Thanks.

T-Funds must be on deposit prior to settlement with your seller, your buyer's funds will need to be on deposit before your T-funding will be done by some lenders, they may not require it in order to make that deposit, but that lender wlll give instructions not to release funds until  your buyer's funds have been deposited. Speak to the lender you're dealing with. 

You may not use your buyer's funds to close your purchase transaction, new ALTA requirements in effect, no title company, closing attorney or settlement agent may use escrowed funds for another transaction. :) 

Originally posted by @Bill Gulley :
Originally posted by @Darvin Ezell:
Originally posted by @Daniel Moctezuma:

@Darvin Ezell A hard money lender can provide transactional funding. You would close under your entity's nae (A-B). Then either the same day or a couple of days later, you would close on B (you)-C (your end buyer). Some investor friendly title companies might consider closing with your end buyers fund so you don't have to use transactional funding. This is however, pretty unusual but possible. 

Just keep in mind, double closing is expensive because closing costs really add up. Adding the 1-2 % transactional funding makes it even more expensive so just make sure you have a huge spread.

 I keep reading that i have to have the borrowers funds in escrow already before i do the first A-B close in order to get transactional funding. How does that process work? Could you please explain that for me? Thanks.

T-Funds must be on deposit prior to settlement with your seller, your buyer's funds will need to be on deposit before your T-funding will be done by some lenders, they may not require it in order to make that deposit, but that lender wlll give instructions not to release funds until  your buyer's funds have been deposited. Speak to the lender you're dealing with. 

You may not use your buyer's funds to close your purchase transaction, new ALTA requirements in effect, no title company, closing attorney or settlement agent may use escrowed funds for another transaction. :) 

 So if i have an reo seller lined up, and also have a potential back end buyer lined up, what would i say to my buyer in order to get him to put his funds in escrow? Do i sign the purchase agreement from my seller, then create a new purchase agreement with my adjusted price for my buyer to sign? Do i have the buyer put the funds into escrow with the sellers title company?

You need to talk to your title company, this all takes place within minutes, on the 10th of the month at 9 am you and your seller walk in, at 9:30 your buyer comes in with funds, at 9:45 the agent clears your TF funds that have been there since yesterday afternoon. Once your buyer's funds are in the title company, they can disburse your lender's TF and you close, your seller leaves, your buyer walks in, his funds have already been deposited and you close with your seller. 

Your contract to your buyer simply states, good funds to be deposited on the day of settlement prior to closing, as earnest money non-refundable held in escrow for settlement. 

Talk to your closing agent first! 

@Darvin Ezell    :)  

Can someone share the Guidelines or agreements from such Lenders ?

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