Credit Rating vs Property Value

Trust Deed lending, and the investment firms who specialize in it, have a unique place in the Real Estate lending landscape. The typical borrowers that come to these private lenders arrive after having been turned down by more traditional lending institutions such as banks and credit unions. Others come because their need for ready cash is so pressing that they are willing to justify the higher costs of private financing.

So, does that mean that Trust Deed lenders take a greater risk then banks do? Well in actuality the risk we acquire is often significantly lower then a banks’ risk. Here is why:

A typical loan officer at a bank will measure the risk associated with the borrower’s likelihood or failure of making timely payments. To assess this risk, he gives most of his attention to the borrower’s credit score. The banker pays more attention to this risk then any other.

Trust Deed lenders, on the other hand, are more concerned with the preservation of capital. So although the borrower’s good credit is always preferred, it has little to do with that measurement which we are most concerned with.

For us, the value of the property we lend against is significantly more important then a borrower’s credit rating. We mitigate the so-called “Opportunity Risk” by having a favorable Loan-to-Value ratio. Often, our loans are made at a maximum of 60% of the property’s most recent value. This means that in the event of a default, there is a buffer between the amount of the loan and the value of the property that should more than compensate the investor.

Additional Topics of Interest:

Learn more about the concept of direct lending and its various benefits by reading: Not All Trust Deed Lenders Are Created Equal.

Discover the importance of the Fractioning concept by clicking on our web page entitled: Investments In Trust Deeds Are Often Made In Fractions.

Go to: Trust Deed Lending Is Predicated On Accurate Loan-To-Value Calculation and get a better understanding of how the LTV calculation has proven time and again to be the Trust Deeds investor’s “ace in the hole.”