When some financing markets get a little difficult for a potential buyer to qualify for a real estate loan, some lenders get creative in their approach to lending and qualifying a buyer.

They want to make money on the investments they have available to them and they need to get the money available to them lent as soon as they can.

As an example, perhaps a lender has a commitment of say $10,000,000.00 with a proposed rate of return to investors of 7% per annum. And further suppose that the current fixed mortgage rate by the typical lender (competition) is at 6-¾%.

One way the lender could market this higher interest rate is to exaggerate the underwriting guidelines to increase borrower´s debt ratio´s, or, extend the term of the loan to 45 years which would decrease the principal & interest payments thus reducing the borrower´s debt ratio´s to ease his qualifying.

In the above scenario, the lender could also offer a 100% loan-to-value program and do one of several ways to entice a borrower:

1. An 80% / 20% loan. Whereby the lender offers an 80% loan-to-value 1st trust deed at 6% interest amortized over 30 years and a 20% 2nd trust deed at 9% interest amortized over 15 years.

2. A 75% / 25% loan. Whereby the lender offers a 75% loan-to-value 1st trust deed at 6% interest amortized over 30 years and a 25% 2nd trust deed at 9% interest amortized over 15 years. (This could be a "NO INCOME QUALIFYING LOAN") fully assumable to a qualified buyer.

3. A 70% / 15% / 15% loan. Whereby the lender offers an 70% loan-to-value 1st trust deed at 6% interest amortized over 30 years, a 15% 2nd trust deed at 9% interest amortized over 30 years, and the seller to carry back a 15% equity position loan at whatever agreed term structured between buyer and seller. (This could be a "NO INCOME QUALIFYING LOAN") fully assumable to a qualified buyer.

4. Or just about any other combination of structuring that the lender could arrange in order to be competitive at the time in order to lend the available funds to homeowners.

It would be nice to think that all one has to do is just apply for a loan and that they would automatically be approved, no matter what their job stability is, their credit history, income is and if they have the ability to repay a loan. Well, this is real life, and things do not happen that way in the mortgage banking industry.

The information that follows will assist you in considering the seven essential elements of a loan transaction which you should understand before funding a loan or purchasing a promissory note.

Just read on!

1. Knowledge, experience, and integrity of the mortgage loan broker (MLB) through whom the transaction may be made or arranged
2. Market value and equity in the Property and the security for your loan
3. Borrower's financial standing and creditworthiness
4. Escrow process involving the funding of the loan or the purchase of the note
5. Documents and instruments describing, evidencing, and securing the loan
6. Loan servicing provisions, authority and compensation
7. Recovering your investment when the borrower fails to pay

1. Knowledge, experience, and integrity of the MLB through whom the transaction may be made or arranged

Before placing your trust and money with an MLB, you would be wise to call: (1) the Department of Real Estate (DRE) to determine if the MLB and his or her loan representatives are properly licensed, how long each has been licensed, and whether any of the licenses have been disciplined; and (2) the local Better Business Bureau to ask if any complaints have been lodged.

Ask the MLB to provide a professional profile for your review and information as to the approximate number and percentage of loans, if any, negotiated by the MLB which resulted in foreclosure (commenced and/or concluded) during the past few years.

Ask the MLB if he or she is the borrower or if he or she has any relationship to the borrower (e.g., if the MLB is a relative, a shareholder, an officer, a director, or a partner of the borrower). When the MLB is the borrower or related to the borrower, we refer to the transaction as "self-dealing."

TD Investments sends in an overview of trust deeds. From the article:
Trust deed investments can offer high returns with low risk. Trust deeds are similar in function to traditional mortgages. The primary difference is that while mortgages involve only two parties, a borrower and a lender, trust deeds involve three: a borrower, a lender and a trustee.

The trustee is a third party who holds legal title to the property in question on behalf of the lender until the loan is paid in full. In the event of default, the lender can take possession of the property.

Investors can invest in trust deeds either by directly making a loan or by purchasing an existing promissory note.

The double-digit returns on trust deed investments touted by mortgage brokers can sound enticing, but investors must be sure to complete proper due diligence on potential trust deed investments before jumping in based on the promise of high returns.

The borrower’s property secures the investment, so it is vital to thoroughly research the property’s market value and title status. Investors should request a Preliminary Title Report from within the past 90 days and review it for any factors that could adversely affect the market value. Issues that should raise red flags include a lack of direct access to a public road, a significant difference between assessed value and appraised value, unexplained encumbrances and unresolved legal concerns, according to the California Department of Real Estate (CDRE).

If an investor purchases a promissory note for a property with these or other unaddressed issues, it could make it difficult or impossible to recover the investment in the event of foreclosure.

There is a very profitable mortgage trust deed investing opportunity that some businesses are educating more African Americans about. Not only is trust deed investing little known among Euro-Americans, but even less known among African American investors.

The average investor is primarily aware of large Wall Street brokerage firms that offer risky products like mutual funds, stocks, and bonds that are for the most part complicated to understand as well as frightening to venture into.

These investments are always preempted with the disclosure of high risk in every portfolio. Where in trust deed investing is a type of investment that offers mortgage backed notes that secure the investor's funds.

There is an extremely secure approach to these mortgage backed trust deeds. To put it simple, they take everyday investor's funds and fund mortgage loans for those individuals, primarily in the African American community that find it difficult to get a mortgage loan approval. These loans are secured primarily by the equity of the property. Therefore, removing the majority of the risk for the investor.