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An Overview of Vendor Financing
Vendor financing is a novel approach to financing for homebuyers. If you have been turned down for a home loan by a bank, you might still be able to purchase your dream home by using vendor financing. This guide provides an overview of all that you need to know about vendor financing.
Vendor Financing Explained
Vendor finance is also known as seller finance or owner finance. This type of loan is similar to layby for retail items: the borrower-purchaser pays instalments to the purchaser and sidesteps the lender. A deposit is paid by the borrower-purchaser to the vendor.
Home Equity Loans
Home equity loans, also known as second mortgages, are secured against the equity in a home. As borrowers can apply for these types of loans without having paid off their mortgages in full, they are an accessible option for people looking to access funds to make investments or purchases. Used in the right way, a home equity loan can give a business the capital injection required for expansion.
Home Equity Loans Defined
Home equity loans are loans that use built-up equity in a home as collateral. The equity you have in your home is calculated by subtracting the current market value of your house from the amount you still owe on your existing home loan. As such, equity can be built up through capital gains and repayments made on the pre-existing mortgage.
Building Business Credit
Establishing a sound credit history for your business can support the expansion of your enterprise in the coming years. To do this, you need to: build good business credit, keep personal finances separate and to choose financing carefully. Following a defined debt-management strategy is also essential for managing debt and building a stable credit history.
1. Operate Under a Separate Entity
Using an entity such as the company structure separates your personal finances from that of the business. This allows the organisation to operate from a ‘clean slate’ and on an independent basis from your personal finances. Use your company name and accounts for everything related to the business, including applying for loans. Operating under a separate entity has the added advantage of protecting your personal finances from exposure to business risk.
Mortgage FAQ’s
Shopping around for the right home loan can be an intimidating experience. Here are some of the most common frequently asked questions on mortgages and the home-loan process.
How Much Can I Borrow?
This is the most frequently asked questions for home loans, and there’s no quick answer to this question. How much you can borrow depends on your lender, current income, assets and financial situation.
How Much Do I Need for a Deposit?
This will depend on the type of home loan you are looking for, but generally you will need at least 5-20% of the total value of the property for a housing deposit.
Commercial Real Estate Financing
Investing in commercial real estate is very different to investing in residential real estate. These differences are reflected in the financing for commercial properties. Commercial property loans tend to be for larger amounts and shorter loan durations, and these loans can vary in type and terms.
Property types
Commercial properties can be commercial offices, industrial complexes or warehouses, retail centres or shopping malls, residential houses, residential units, or other types of commercial properties. Financing can be obtained for purchases or for development and renovation projects. The borrower might be planning to use the site for business as an owner occupier or might be planning to lease it out as an investment property. If the borrower is a developer, he or she will be using the loan to fund a development or extension project.
Guide to Sub-Prime/Low-Doc Loans
Low-doc loans, also known as sub-prime loans, are designed for borrowers who find it challenging to access traditional home loans. This quick guide to sub-prime loans outlines what is required for a low-doc application, who can benefit from low-doc loans, and the key things to know about low-doc loans.
What are low-doc loans?
Low-doc loans are designed for those who find it difficult to obtain traditional financing options. These may be home loans, personal loans, business loans, and other type of loan. As the name implies, low-doc loans require less paperwork and documents than traditional home loans.
Financing for Small Businesses
Sourcing adequate finance can be the difference between failure and successful growth for small businesses. The good news is that access to finance is not a major issue for most SMEs.
Accessing financing not a challenge for most
A report by DBM Financial Services Monitors and commissioned by the Australian Bankers’ Association and the Council of Small Business of Australia has found that only 6.6% of SMEs in Australia were worried about accessing finance. However, small businesses in certain industries found it harder to access finance than others.
Advantages of Using a Bridging Loan
Bridging loans are novel financing options that enable homebuyers to purchase a new home before selling their existing home. Also known as caveat loans, bridging loans are short-term loans that usually last for 3-12 months, rather than the decades associated with traditional home loans. Bridging loans are rarely effective for more than a year.
Features of bridging loans
Bridging loans are distinguished by a number of features. There is usually no option to roll over a bridging loan; the terms and conditions in this respect are usually final. Bridging loans are typically secured by a first or second mortgage to an existing home, and some lenders may give the option to pay off the loan earlier than the agreed term.
Many lenders do ask for upfront fees for bridging loans, and the loan-to-value ratio may be lower than for a traditional mortgage. For example, a lender might only offer a 65% loan-to-value ratio at maximum, but some lenders might be able to offer higher ratios.
Caveat Financing: What Is It?
Caveat financing refers to short-term loans that can last anywhere from two weeks to two years or more. Also known as bridging loans, this type of financing is typically used by home buyers to cover the period between the sale of an existing home and the purchase of a new home.
How caveat loans work
Caveat loans can be understood as a short-term second mortgage over the borrower’s existing property. Once the existing house is sold, the buyer or homeowner pays off the caveat loan using the proceeds from the property sale. Caveat financing can therefore be useful for homebuyers who are unable to sell their existing home before purchasing a new house.
Using a Private Lender to Buy Property
It is a common misconception that only banks and traditional financial institutions are able to provide mortgages, when in fact there are a number of non-bank lenders that are capable of providing just as good (if not better) arrangements for clients who do not necessarily want to deal with a bank.
Some of the advantages of using a private lender to buy a property, whether it be for investment purposes or for you to live in yourself, include:
Less red-tape
When using a private lender to buy property, there will generally be less paperwork and less bureaucratic hold-ups. This is due to private lenders generally having a smaller clientele and dealing with loans by looking at the underlying security on the property, as opposed to the big banks that receive so many applications that they are all bundled together and, during the first stage of approval, only look at surface figures.