Lending question

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Cross-7
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Lending question

Postby Cross-7 » Sat Apr 29, 2017 5:20 am

I've been kicking the idea around of expanding, but nothing has come up that I really like.

So while I wait I've wondered whether I should pay off my current place and use it as collateral when I find another place
Or keep cash on hand although I'd still need to borrow 25-50% to make the purchase.

From a bankers standpoint which looks more appealing ?
Paid for land as collateral or 50% vested
Say cash and paid for land being equal value
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Bright Raven
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Re: Lending question

Postby Bright Raven » Sat Apr 29, 2017 6:15 am

You can do it either way. The lender will look at it from a total debt to asset equation. Where you move or how you hold the assets will not change the bottom line in most cases.
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Re: Lending question

Postby ddd75 » Sat Apr 29, 2017 6:47 am

cash is always king.

it really depends on your banker.. mine will take the collateral and make the loan, but a lot won't.
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Re: Lending question

Postby TexasBred » Sat Apr 29, 2017 8:47 am

Cross-7 wrote:I've been kicking the idea around of expanding, but nothing has come up that I really like.

So while I wait I've wondered whether I should pay off my current place and use it as collateral when I find another place
Or keep cash on hand although I'd still need to borrow 25-50% to make the purchase.

From a bankers standpoint which looks more appealing ?
Paid for land as collateral or 50% vested
Say cash and paid for land being equal value

Fees and closing cost will be higher on a loan with two separate properties as collateral. You'll have two appraisals, two survey, possibly two title policies, not to mention a larger loan balance and more interest paid each month. I'd keep one property free and clear just in case everything might go to he// unexpectedly . At least you'd have it left to start over with. From the bankers point of view he will take everything he can get as collateral.
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Re: Lending question

Postby DLD » Sat Apr 29, 2017 10:27 pm

Depends most on the terms of your current real estate loan. If it's a fixed rate, you'd probably be ahead to keep it, because chances are interest will be higher on your next one. Beyond that, I'd say it depends on how you feel about your current lender - if you think you'll probably want to deal with them on your next purchase, let it ride. Already having a loan in good standing should give you a shot at their best possible deal. If you're sure you want to go somewhere else, pay it off and save the interest you'd be paying in the interim. If you're going to shop lenders, like Bright Raven said, debt to asset ratio is what matters to them, so cash vs equity is pretty much of a wash.
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Re: Lending question

Postby cow pollinater » Sun Apr 30, 2017 9:11 am

For me it would depend on timing. If it's long term then I'd start paying down on the place I have but if you're looking at something this year I'd put it on the new place. Putting it on the new place would save you some taxes but paying down on what you already own wouldn't.
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Re: Lending question

Postby Stocker Steve » Sun Apr 30, 2017 10:00 am

TexasBred wrote:Fees and closing cost will be higher on a loan with two separate properties as collateral. You'll have two appraisals, two survey, possibly two title policies, not to mention a larger loan balance and more interest paid each month. I'd keep one property free and clear just in case everything might go to he// unexpectedly .


2X

I just financed a third place. The banker wanted all three places as collateral. I said no - - one will be free and clear. He pontificated on the appraisal for a minute, but then folded because the debt to asset ratio was still OK.
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alisonb
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Re: Lending question

Postby alisonb » Sun Apr 30, 2017 11:07 am

TexasBred wrote:Fees and closing cost will be higher on a loan with two separate properties as collateral. You'll have two appraisals, two survey, possibly two title policies, not to mention a larger loan balance and more interest paid each month. I'd keep one property free and clear just in case everything might go to he// unexpectedly . At least you'd have it left to start over with. From the banker's point of view he will take everything he can get as collateral.

Good advice...were you a banker by any chance :P . TB, would the bank only grant a loan on a certain % of property value over there(USA) and not 100%?
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Re: Lending question

Postby hurleyjd » Sun Apr 30, 2017 11:11 am

alisonb wrote:
TexasBred wrote:Fees and closing cost will be higher on a loan with two separate properties as collateral. You'll have two appraisals, two survey, possibly two title policies, not to mention a larger loan balance and more interest paid each month. I'd keep one property free and clear just in case everything might go to he// unexpectedly . At least you'd have it left to start over with. From the banker's point of view he will take everything he can get as collateral.

Good advice...were you a banker by any chance :P . TB, would the bank only grant a loan on a certain % of property value over there and not 100%?


My experience any lending institution will require 20% of the money loaned to come from the borrower. Example on $100000
by lender $80000 borrower $20000 of the purchase price.
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Re: Lending question

Postby greybeard » Sun Apr 30, 2017 12:59 pm

Some CUs will go closer to 5% down.
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Re: Lending question

Postby Stocker Steve » Sun Apr 30, 2017 1:44 pm

alisonb wrote:would the bank only grant a loan on a certain % of property value over there(USA) and not 100%?


Private banks here like 50% down on ag land, but they will go as low as 20%.

Five %, or even less, down for certain government guaranteed loans.The appraisal gets to be a bigger deal in that case.
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Re: Lending question

Postby greybeard » Sun Apr 30, 2017 1:55 pm

Yep, and sometimes there has to be a home involved in the purchase, and different appraisals for home and ag related structures and infrastructure.
My nephew found out the hard way that the VA is real picky about it, even to the title on the contract. 'Farm and Ranch' evidently causes lots of problems in lending institutions..
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Re: Lending question

Postby DLD » Sun Apr 30, 2017 5:29 pm

If you can go with a Farm Credit institution, I think you'd like it. They will probably require 30-35% down (FSA guarantees are an option if you're in a tighter financial situation), but you'll be dealing with a lender that is strictly agricultural - they understand what's going on, and want to help you be successful. Depending on which county you're in, there are 2-3 different associations serving sw OK. It's at least worth checking into.
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Re: Lending question

Postby Beefeater » Sun Apr 30, 2017 6:53 pm

Cash in hand will give you maximum flexibility both to a seller and potential lenders.

Certainly every situation is different, but in my (non-ag) lending experience cash can open doors equity cannot.
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Re: Lending question

Postby JSCATTLE » Sun Apr 30, 2017 7:01 pm

No way would I put up a paid for place as collateral. I'd pay appraised value for the new place with 20% down. The bank needs some skin in the game for the high amount of interest you will end up paying. The longer you pay the better it gets for the bank in case they foreclose.
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