My neighbor hit me up (whom i trust), about buying and flipping properties. He then told me about his mortgage broker, who helped him buy his house, that there was away for he and i to get a line of credit from the bank. here’s how he explained it to us: he would write the proposal (for $200), approach the bank and submit it. The bank, if approved, would give us a line of credit, say $200k, based solely on our credit score (both are above 700). We would then pay a 1%/year fee, plus interest only on the l.o.c. (prime plus a pt). the only collateral we would have, is the houses that we bought w/ the l.o.c. I’m wondering if this sounds legit, or if anyone has ever heard of such a thing. We’re both ready to pull the trigger, at least on getting the mortgage broker to approach the bank, we figure it’s at least worth the $200 to see if we could get it. Please, any thoughts?
I’d like to apologize, i didn’t realize that Skydivecock had just written about this on thread below, but I think my situation is different, and maybe only different. mine would be an LOC based on fico only. thanks
Get the name and number of the bank and call them. Have them explain the entire process to you, tell them about others that have done this as well. If the broker is not willing to give you this info walk away, simple as that.
thanks sean, and i just read your reply to skydivecock as well, as both situations are somewhat similar.
the name of the bank is one thing i haven’t even thought of to ask about…but i am wanting second and third opinions. We have a real estate broker who also flips houses and we’ve been trying to get his opinion on the deal. I’m still leary of the whole concept. but, i have talked to the mort. broker again about it, concerned about collateral, and he reassured me about the collateral being the houses that we purchase. I’m very interested in this concept, yet very leary as well…
You are your neighbor need to form a LLC. Then get the line of credit in the LLC’s name. If the loan is to you personally, then they can come after you to pay it. I’m sure there’s more to it than what I’m explaining too. You just definitely want to get the loan in the LLC’s name. See if they make you sign a personal guarantee or not.
thanks marcus…and this is what “Bob” (his real name, btw) plan to do, but according to the mortgage broker, he will take care of everything for us on the front end for the $200. I’m just wondering if anyone has ever heard of a bank (or any other lender) taking that kinda risk on someone, who wants to invest in real estate, esp. in a stagnant or declining market?
If your credit score is high enough people will throw money at you. You have to understand how it works. The mortgage broker gets his fee no matter what. Obviously he wants to sell as many mortgageas as possible. The bank then bundles your mortgage with others and it gets sold as bonds. The guy buying the bonds is the one taking the real risk. The banks has enough spread in the returns to allow for some mortgage failures. With high credit scores, you two are seen as low-risk.
i see, thanks marcus…so it’s starting to sound like the proverbial smoke isn’t being blown up our asses…which, i was thinking, wouldn’t be a good thing for the broker to do in the first place, plus, he seems on the up and up…
It’s not necessarily a smoke screen. It could be very legit. Just make sure the loan is in the LLC’s name without a personal guarantee. Then you are set. I was just explaining the reasons why they do it. If it helps you out, then you should take advantage of it.
Good luck with that, however everything that I have heard it is pretty rare to find a loan that won’t require a personal guaranted. This is espcially true of a LLC that has been recently setup.
technically, sean, it’s not a “loan”, it’s a LOC. Everything I’ve read and heard, explains them completely different. ie: a construction loan and a conventional loan are two, totally different monsters…but thanks for your insight all the same.
You can include LOC in my previous post. That is still a loan it is just revolving. Again, haven’t seen any LOCs that don’t require personal guarantees.