Fairfield Financial Services, Inc. - Private Money Loans, Lending & Borrowing

The Private Money Broker

Bridging the Gap

July 16th, 2019

Clay Sparkman

One of the most notable advantages of using private money to source your borrower’s projects is that it allows for creative problem solving due to the flexible nature of the beast.  In particular, there are a number of ways that one can often make a private money transaction work, on any given project, even when the LTV initially appears to be too high. And as you likely know, that is all too frequently the case. Here are some of the loan-hacks that we may use to get around that problem:

  • We are able to base LTV on the true value of a property (as opposed to purchase price); frequently our savvy commercial investors are able to buy under value and thus this makes a significant difference when establishing true LTV.  (The caveat here is that the borrower must be able to make a case to support the alleged higher value. This need not be formal, only well organized, clear, and logical.)
  • We are able to base LTV on the projected value of a property when rehab or construction is involved. (Money well be held in a trust account and disbursed as the project is completed, ensuring that the LTV never gets wonky.)
  • We will allow a seller carry back in second position when a buyer is able to negotiate this type of arrangement to his/her advantage. With a cooperative seller, this may make up the majority of a borrower’s down payment.
  • We will allow a borrower to pledge other real estate assets as additional collateral to make up for a shortfall in LTV on the primary project. (And we will build in release clauses allowing for the release of additional collateral properties prior to the completion of the project.)
  • And ultimately, one of our most effective tools for bridging the gap when the LTV ratio is running too high is to carry some or all of our fee (either to be paid monthly or to be paid in one lump sum at the completion of the project. My father has often said that the difference between being able to do a loan and not being able to do a loan is generally our fee. And there was a time when that was too often the case. Well, we at Fairfield have made a conscious policy decision to ensure that this never happens again. Based on the premise that a dollar tomorrow is better than no dollars today, we have decided to carry the necessary portion of our fee (as a small second) any time that this is necessary to make an otherwise good loan fit our LTV criteria. This is no small thing, as our fee generally runs in the range of 3-5% (depending on various aspects of the loan, including size, location, degree of difficulty, risk factors, and speed of closing, among others), and originating brokers (when involved in a transaction) generally charge somewhere around 1% for their part in the loan. Thus, combined fees may run as high as 6%. (I never claimed that private money was cheap; I said that it is fast and flexible.) Hence, with broker cooperation, we are able to reduce, for example, 71% LTV exposure on the main loan to 65% LTV, and this will frequently bring it to within a workable range of exposure.

Bottom line: Private money gives us flexibility in many situations where more conservative loan sources cannot. And with our commitment to making good loans come together, we are willing to work with brokers and borrowers to utilize the full range of this flexibility.

Give us a try.

— Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, CO, ID, MT, and NV. To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

Private money FAQ

June 12th, 2019

Clay Sparkman

I like to post our general FAQ from time to time.

Private money is often misunderstood. Many industry professionals know very little about it, and fallacies and misconceptions tend to dominate the collective wisdom. I have made it my mission to try to educate professionals regarding the realities of private money. In this capacity, I spend a lot of time answering questions about private money. I figured it was about time to prepare a FAQ on private money and share it with this group. So here you go.

-What is private money used for?
Private money is generally used as a bridge: a way to get from point A to point B. It is generally a short to medium term solution (1-3 years), and there is nearly always an exit strategy going in. It is used for all types of real estate secured financing: commercial retail, restaurants, hotels/motels, marinas, elder care facilities, industrial, agricultural, raw land, land development, construction, rehab, multi-family, single family homes, manufactured homes, and floating homes. For a list of our private money loan programs, click here.

-What are the interest rates?
Private money rates generally range from 8 to 13% (typically 11%). The rate is determined by looking at a combination of factors: (a) LTV ratio, (b) strength of borrower, (c) condition/desirability of property, (d) actual cash-in or real equity contributed by borrower. A list of our loan guidelines may be found here.
-What fees are involved?

We charge a loan fee which varies depending on the particulars of the loan between 3-5% of the gross amount of the loan. We also charge a doc prep fee ($675 or more, depending on the size of the loan), a property inspection fee ($500 or more, depending on the location of the property), and a collection account setup fee ($470 or more, depending on the size of the loan). That is all the charges you will ever see. We have no hidden junk fees.

-Can the fees be paid from the proceeds of the loan?
Yes, if there is enough equity in the project. This is generally the case.

-Is there a pre-payment penalty?
Most of our loans have no pre-payment penalty.

-Why would anyone pay those kinds of rates and fees for a loan?
There are many reasons why a borrower would choose to use private money over a cheaper institutional option. For example, professional real estate investors like to use private money when buying because they are able to make offers which are not constrained by long timelines and numerous rigid conditions. Often times speed is a very significant factor in completing a profitable transaction and in those cases it often makes sense to pay for a short-term private money option rather than loose the deal. Frequently the condition of a property won’t allow for the initial financing with conventional money, and in those cases private money may be used. Often the type of property is a factor: banks don’t like lending on raw land and lots, but private money lenders are more inclined to do so. Cash leverage is another factor. Fairfield Financial, for example, loans based on the true value of a property, not the purchase price, so sometimes we lend most of the acquisition cost for a property.. The structure of the deal may be a factor. Most private money lenders allow the buyer to establish their equity through the mechanism of a seller carry back; banks won’t do this. The list goes on and on.

-What is the most common use for private money?
Our most common loans are probably construction, rehab, and land development loans. We have an entire FAQ devoted to such loans at: http://www.privatemoneysource.com/articles/rehabfaq.php

-How fast can private money loans close?
We have been known to close loans in a matter of a few days, but more typically, you should figure on 10-15 business days. (Keep in mind that it is only possible for us to move quickly if the borrower, broker and other third parties are moving quickly as well.)

-is an appraisal required?
Some private money lenders require them. We don’t. Evidence of value is a critical part of the private money loan process. However, it is our opinion that a good set of comps is just as effective in establishing value as a good appraisal. Many of our borrowers are professional investors, and we feel that they are qualified to perform the value analysis. This allows us to streamline the process. However, it is important to note that putting together a god set of comps is hard work. See the following article on our website for a detailed description of how to prepare a proper value analysis: http://www.privatemoneysource.com/articles/comps.php

-As a mainstream mortgage broker, I don’t see much of this type of thing. Why should I be interested in private money?
To be perfectly frank, it is my belief that mainstream mortgage brokers are gradually being squeezed out of the industry. Lenders are ramping up their operations to better provide online loan sourcing directly to borrowers. We saw a similar thing in the travel industry. The travel agents that have survived, and even thrived, are the ones who effectively established niches within the industry. It is my belief that the same will ultimately be true for mortgage brokers. Plain vanilla loans can be easily processed in an assembly line fashion which easily translates to the world of the novice and a web browser. Niche lending, on the other hand, tends to be a hand-crafting of sorts, and cannot be easily automated. Look at private money. There are no absolute rules. Many factors must be considered in making a decision and frequently those factors are intangible. Ultimately a high degree of thought work and common sense is involved. Private money will always be a people process. At the very least, it allows you to broaden your offerings and make yourself more attractive to borrowers who may need different kinds of lending. So, if you tell me, I am not interested in private money because I don’t do unusual loans, I say to you, you might want to reconsider.

-As a mortgage broker bringing you this transaction, how do I get paid?
It is simple. You bring us a borrower. We price the loan to you. (Think of yourself as a wholesale buyer.) You price the loan to your client, adding your fees as appropriate. You stay involved in the loan (or not) as you choose, and prior to closing, you submit a fee demand to escrow and receive a check directly from the title company. For more information on this topic, see: http://www.privatemoneysource.com/brokers.php

-Why do they call it hard money?
It is difficult to find an answer to this question. I’ve heard plenty of speculation. Some people say that it’s because the money is used for hard to do loans. Others say it is because the loans are hard to get or hard to pay. It is my belief that it is called hard money because traditionally it has been real money in the sense that it is not borrowed. Institutions loan borrowed money, and in this sense, they loan soft money. However, I must point out that things have changed a bit over the years, and these days a good deal of hard money is in fact borrowed.

-How do I go about doing a private money loan with Fairfield Financial?
There are basically seven steps.
(1) First, run the concept by us. The best way to get started is to provide us with a high-level summary of the loan. You may e-mail a summary, or you may use our online submission engine, which will walk you through the process. It is quite simple to use. You will find that at: http://www.privatemoneysource.com/loanproposal.php

(2) If we like the project concept and feel that the numbers are acceptable, we provide you with a rough quote.

(3) Once you approve the rough quote, we provide you with a list of items that we need to receive and review in packet form.
(4) We then review this loan packet. We ask that this be sent via overnight mail or send via e-email, as a single Adobe or Word attachment.
(5) If all this checks out we ask the borrower for a deposit (average amount = $1,000). This should be in the form of a cashier’s check or money order. We provide a conditional loan commitment letter at this time, and the deposit is fully refundable (as described below).
(6) We send someone out to inspect the property.
(7) If the property checks out, we draw up the documents and close the loan through escrow.

-Is the deposit check refundable?
If we close the loan through escrow, the deposit is applied as a credit to the loan fees. If we don’t close the loan because (a) the borrower does not or cannot perform or (b) the project upon inspection is “significantly” different than as represented, we keep the deposit to reimburse us for our costs. Otherwise, if Fairfield fails to perform for any reason, we return the deposit to the borrower.

-What needs to be included in a private money loan package?
As I said, we provide a list specific to your loan scenario. However, if for a list of our general packaging guidelines, please see the following: http://www.privatemoneysource.com/packaging.php

– Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, CO, ID, ID, MT, and NV.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

Traversing the private money path

June 6th, 2019

The following is a re-post of a good article in The Scotsman Money Guide (2016), providing a road map through the private-lending landscape, for brokers and borrowers:


By the way, if you do not already use The Scotsman Money Guide (either the online or paper version), I highly recommend it as an excellent guide to various lender resources. They do a nice job of helping you find lenders that meet your specific needs and criteria.

If you would like to discuss private money loans further or run a particular scenario by us, contact Clay via e-mail at clay@privatemoneysource.com. Otherwise, if you would like to get a better feel for our company and the types of programs we do, please browse our web site at http://www.privatemoneysource.com.

Clay Sparkman

– Clay (clay@privatemoneysource.com, 503-476-2909)
Clay is Vice President of Fairfield Financial, a primary source for private money since 1964. Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX. To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

Construction and rehab loan proposal

May 17th, 2019

Clay Sparkman

We have run this program on several occasions, and we are so excited about this specific niche that we are going to run it again in honor and celebration of summer.

As a private money construction lender, we’re able to provide a variety of creative solutions that are just not available via more conventional sources. If the parameters and circumstances are right, we are also able to overlook many issues that might be problematic with more structured lenders. Small to medium construction loans are one of our sweet spots, and we are geared up to make as many as we can this construction season.

Starting immediately, and for a short time, we are offering a significant cut in our construction and rehab loan rates. Our regular charge for a 12-month construction loan is 5 points and 9-11%–the rate dependent on the particulars of the loan—but typically 11%.

For the month of June/July/August 2019, we are offering (via brokers and direct to borrowers) 12-month construction and rehab loans–for ground up construction priced at 3 points and 19-11% (typically 10% depending on the particulars).

The conditions are as follows of this promotion are as follows
(1)   You must register with FFS by sending an e-mail to clay@privatemoneysource.com with “REGISTER” in the subject line and your name, company name, and phone number in the body of the e-mail, no later than 7/1/19.
(2)   You must submit a summary of your loan no later than 7/15/19, and FFS must approve the summary.
(3)   You must submit a complete loan packet, as required by FFS, no later than 8/1/19, for the loan the same loan for which you submitted a summary in July or August.
(4)   The minimum loan size for this promotion is $200,000.
(5)   The loan must close no later than 9/15/19.

Check out our web site for details re our loan criteria, our packaging guidelines, and our process.

I encourage you to sign up and give it a try. The real estate market is up and rising, and we are just now entering the construction season of 2019–one that I expect to be the best we have had in quite some time.

All the best in your endeavors, Clay

– Clay Sparkman (clay@privatemoneysource.com)
Vice President of Fairfield Financial, lending since 1964.  Currently targeting loans in Oregon and Washington, with potential to loan in:  CO, ID, ID, MT, NV.  To submit a loan to Fairfield Financial for consideration: http://www.privatemoneysource.com/loanproposal.php

Home rehab season is here

April 5th, 2019

S. Clay Sparkman
Once again it is spring, and that means that its time for the builders season to get underway.  We finance new construction, but have also done a great many small rehab projects over the years.
The numbers indicate that rehab activity is down generally over this past few years. If I were calculating whether or not to get into the markets, I think that I would take that as a positive sign. Many times in the past, the competition from “professional buyers” has been so high that it has been difficult to buy the right home project at a low enough price. (I am sure you have heard it said (correctly I might add) that the money on fixer projects is made almost entirely on the buy. ) By my assessment this may be an ideal time to jump in.
Here is an article that deals with the question of how to finance your projects.
Typically our financing for a project can be had at 10-11% and 4 points for one year.
Below you will find a summary for a project that we just funded. It is a perfect example of the type of projects we like to do.
Thank you,
Clay, clay@privatemoneysource.com, 503.476.2909

Kristopher Gillmore

Fairfield Financial Services, Inc

3327 SE 50th St, Portland, OR 97006

Phone (503) 319-7294 / Fax (503) 419-4219 / E-mail: gillmore@privatemoneysource.com


Fix and Flip of SFR in Portland OR
Loan Details

  1. Loan Amount: $243,000
  2. Term: 18 Months
  3. Construction Holdback:  $50,650
  4. Interest Rate: 11%
  5. Monthly Payments: $2,227.50 Interest Only
  6. Security:  Deed of Trust in 1st Position security interest in real property located at XXXX N Seneca St. Portland OR, 97203
  7. Projected Value of property based on realtor comps:  $370,000
  8. ARV based on Realtor Comps: 66%

Loan Overview
Mr. XXXXXXXX (through his company XXXXXXXX, LLC) is requesting a loan to purchase, renovate, and flip a small SFR in Portland.  Mr. XXXXXXXX will personally guarantee the loan, and he is putting down approximately $35,000 down with cash out of pocket.  The purchase price of the property is $216,000, and the renovation budget is $50,650
Mr. XXXXXXXX has worked with Fairfield in the past as both a lender and a borrower. In a lender capacity, he’s made 2 loans with Fairfield, with one loan outstanding with an $80,000 share owned by Shane.  As borrower, he currently has a 7-unit rental property in Pendleton that was financed by Fairfield, with an outstanding balance of $180,000.  Mr. XXXXXXXX’s performance on this loan has been excellent, and he has set up an auto-pay through his bank, so he has a perfect pay history.
The subject property was built in 1909, sits on a 50 x 100 SF lot, and has 2 bedrooms and 1 bathroom over a 924 SF main level.  There is also a 528 SF basement.  You can see more details on the property (not photos) at the following link: www.XXXXXXXX.
A certified home inspection was performed and included in the packet for review.  The inspection did not reveal any issues that Mr. XXXXXXXX was not already anticipating or already addressing in the budget provided.
Mr. XXXXXXXX will be hiring out some of the work, but he plans to do the bulk of the work himself.  Mr. XXXXXXXX used to carry a contractor’s license, and he has the skill, experience, and equipment to do the work.
There aren’t many photos of the property online, but photos have been included in the packet as well as the inspection report.

Mr. XXXXXXXX and his realtor have provided 11 recent comps (9 are sold, 2 are pending) to come up with an ARV of 370K.  This works out to $254.82/SF
The comps vary with sold prices from $419,900 – 319,000, and $/SF ranging from $221/SF – $425/SF (the $425 is an outlier and is only 890/sf).  Only 2 of the houses have a sold $/SF in the $221 range.  The next lowest is $248, and the rest are all over $300/SF. There’s a strong correlation between the $/SF and the size of the houses, with the smaller houses (I would guess not including a basement) having the highest $/SF.
For a newly remodeled home, I think the $254/SF estimate is pretty reasonable.
These comps have been provided in the packet for your review.
A Commercial application has been provided by the borrower.  Mr. XXXXXXXX reports an annual income of $81,000 and a net worth of $422,000.  However, this doesn’t reflect the new loan he recently funded with Fairfield, which would increase his net worth by $80,000.
A credit report has been provided separately from the packet.  This credit report is a bit on the old side (it was pulled on 11/30/18), but Mr. XXXXXXXX has excellent credit scores of 769, 794, and 797 as shown on this report.

Sunshine and hard money

March 19th, 2019

Clay Sparkman
Summer is just around the corner!
In the Pacific Northwest, that means it is time to play–or for those who are investing in real estate projects, perhaps the reprieve from the rain means that it’s time to get to work on purchase and rehab projects. As much as 80% of the loans that we do are loans to builders, developers, renovators, and quick-flip artists. We have creative funding for all types of projects.
As an example: we had a borrower approach us about obtaining the funds to purchase and rehab three little mill homes in a small town east of Salem. The real estate market in this town has fallen flat and so the borrower was able to tie these properties up for the amazing price of $32,500 each (mind you these are small but respectable little houses). Though his credit was rough (due to some bad breaks with the sale of a business venture), he had an excellent plan for rehabbing and marketing these properties to Salem residents looking for bedroom community tranquility. What’s more, the borrower was able to offer some additional collateral in the form of a second against a small commercial building that he owned and leased for a tidy profit.
We were able to loan him 100% of the purchase money, 100% of his rehab money, and 100% of the closing costs. The loan of $145,000 was closed in less than ten days (well before his purchase agreement expired), and the borrower–though paying a 5% commission and 15% interest–was not particularly concerned about these costs, as he was able to get in and out of the loan in just a few months time; and with no prepayment penalty, he turned a handsome profit on this venture.
These are the types of things that private money was made for.  When done right, private money is a win-win-win business (with a few extra wins thrown in on most transactions).
As a broker in a tough market, you should not only be looking for these types of transactions, but you should be going out and getting them.  Don’t sit and wait for the business to come to you, go get it!
If you need guidance on how to market private money loans to builders, developers, renovators, and quick-flip artists–give Fairfield Financial a call.  That is what we are about.  That is what we do.  And we can’t do it without you.

— Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

Top ten reasons to consider using a different source for your private money loan

February 8th, 2019

Clay Sparkman
I posted this years ago. Being Friday and all, I figured it would be nice to have a laugh. Enjoy!
I remember when I first came into this business 25 years ago, the general attitude toward private money–and private money lenders and brokers–was quite negative.  And to a certain extent, the reputation was not completely unearned.  It was an industry that seemed to harbor a small handful of crooks and a great many more just plain unprofessional “business people.”  And yet, what many people didn’t understand is that there were also a good many honest, professional individuals and entities offering a legitimate, useful, and important product.
As time went by, the rap on private money lenders improved significantly, and it almost got to the point where private money was considered to be kind of “sexy.”  (But that would be an exaggeration.) Everyone wanted to have a piece of that market.  Most of the players these days are honest, in my opinion, and many are highly professional, but still I think I’d like to have a go at those still in the market who are either dishonest or unprofessional or both.  Some private money lenders quite simply don’t belong in the business.  If not dishonest, they are paranoid and distrustful of every borrower that comes to them, and as such, they tend to go too far in trying to protect their investment.  This TOP TEN LIST is dedicated to those folks.  (They know who they are.)
Drum roll please…
Top ten clues that you should probably withdraw your loan request as fast as you can, and try elsewhere:
10. One number and two words:  $25,000 non-refundable deposit.
9. The investor insists on moving in with the borrower to “keep an eye on” his investment.
8. The investor insists on language in the loan agreement to the effect that: “… borrower will not eat junk food during the term of the loan, will not engage in bar fights, will not smoke certain substances, and will not jump out of airplanes or otherwise engage in so-called extreme sports.”
7. The lender requires a lien against borrower’s pet corgi, Noodles, as additional collateral to secure the loan.
6. Lender keeps referring to the subject property as “my property.”
5. Rates are by the day (uhhh … you know, like car title loans).
4. Lender keeps saying ka-ching at the end of every phone conversation.
3. The only product on offer involves a one week term with a 3-day extension option.
2. The investor wants to become a co-signer on the borrower’s checking account.
1. The investor requests a perpetual easement to ride his ATV on borrower’s property (and the borrower’s lot is only 4,000 square feet).

– Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Currently targeting loans in Oregon and Washington, with potential to loan in:  AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield Financial for consideration: http://www.privatemoneysource.com/loanproposal.php

Real estate values – what's next?

January 29th, 2019

S. Clay Sparkman
It has been quite a challenge this past dozen years predicting the movement of real estate market values. Values spike. values crash, values spike again, and then … maybe get a little squishy. Also, note the strange happenings in the national political machinery. It might be perilous to ignore this entirely.
For anyone who has been paying attention, I believe it would be hard to make a confident projection at this point.
In reading through some of the analysts and prognosticators, I felt that the following item by Caroline Feeney at Forbes did a nice job of identifying some of the factors and trends at work and codifying a reasonable scenario going forward.
Her column is at:
Real Estate Markets Cooling Across the Country, And It’s Not Just The Winter Effect
If anyone out there has any thoughts on this one way or another, please give us your thoughts.
Clay Sparkman (503.476.2909, clay@privatemoneysource.com)

Rehab and construction loan FAQ (revised)

January 18th, 2019

Clay Sparkman
Here is an updated version of Fairfield’s Rehab and Construction Loan FAQ.
One of the most promising areas, at the moment, for real estate investors and brokers, by all indications, is REO, rehab, and quick flip of properties. The opportunity to buy distressed properties at a low price point is evident in many markets.  And yet it is difficult for most end-buyers (with a non-profit initiative) to take advantage of these opportunities, as they are not prepared to deal with the financing challenges or the rehab work involved when buying one of these properties. Thus comes a wonderful opportunity for those real estate investors who can size up a market effectively, move to buy challenged properties at below value prices, rehab them quickly, and get them back onto  the market at a slightly below market price.
Another point in favor of this brand of real estate buying/investing: Real estate investors who either (a) buy and sell quickly or (b) hold for the long haul are not as likely to get hurt by falling market values. It is those who are planning to hold a property for 1-5 years that are the most vulnerable.
And as we know, what is good for the borrower in this business is generally good for the lender, as well; these types of loans may be some of the best that private money lenders can expect to see for the next year or two and thus the easiest to get funded.
We tend to receive an endless parade of questions from lenders, brokers and borrowers as to how to best structure these types of loans, so here is an example (representative I think) of how one organization (Fairfield) goes about it.


What is your maximum LTV ratio for rehab and construction loans?
Well, it is important to talk about front-end and back-end LTV. Our maximum back-end LTV is 75% and our maximum front-end LTV is about the same (with a little more flexibility), though in the present market we try to keep that closer to 70%.
What do you mean by “back-end LTV”?
By back-end LTV, I mean the LTV at the completion of the project. For example: let’s say a borrower needs $100,000 for the acquisition of a property and $20,000 for construction funds and thus wishes to borrow $120,000. If the completion value of the property is conservatively figured at $185,000 based on comps provided by the borrower, the back-end LTV will be 120/185 or 65%.
Okay, so then what is “front-end” LTV?
Front-end LTV is the LTV immediately upon the closing of escrow but prior to any construction. In the example above, it is a little tricky to talk about the current value of the property since it is a fixer (and fixers are tough to comp directly), but if we determine that the AS IS value of the property is $135,000 then the front-end LTV is 100/135 or 74%. Generally, with rehab projects, if the back-end LTV is in-line, then the front-end LTV will be in-line also. This is because with rehab projects, the profit is made in the buy, not so much in the construction or the sale.
With construction loans, on the other hand, it is usually the other way around. The profit is made in the construction and generally not in the acquisition of the land. So, with construction loans, we need to work a little harder to make sure that the front-end LTV is in order.
Do you require an appraisal?
For rehab projects, rarely ever do we ask for an appraisal. We know that professional investors must move quickly and that they are frequently the best source for data regarding the projected value of their project. If an investor tells me that he expects to sell a property for $200,000 upon completion, I say, “Show me how you have come to this conclusion.” A good set of comps is frequently enough.
With construction projects, it is a little tougher sometimes to get a handle on the completed project, so on occasions, we will ask for an appraisal.
Are you able to loan 100% of hard costs?
Generally, not 100%. We like to see “a little skin in the game,” The amount of required down payment may be quite low. It all depends on the particulars of the borrower and the project. Our very strong repeat borrowers are sometimes able to leverage 100% and are not required to bring any money into the project. And borrowers with additional collateral, as well. It really depends on two factors: (1) How strong is the borrower? And (2) How well is he buying?
How does the construction money get disbursed?
From time to time, as a borrower completes the construction of a project, the borrower will submit a draw request to Fairfield Financial. Fairfield will review this request and, upon approval, release funds either directly to the subs/suppliers (if requested to do so) or to the borrower (if the borrower has already paid the subs/suppliers). Fairfield is responsible for ensuring that (a) the work is completed to an appropriate quality standard, (b) the project is on-budget (or if not on-budget, appropriate adjustments are made), and (c) that all subs and suppliers get paid for their work on the project. Borrowers are encouraged to make as many draw requests as they require, and if a request is complete and valid, we can generally disburse funds within 48 hours.
How much experience do you require from the borrower?
Well, it is nice to see a borrower come in with a little experience, but I have learned over the years that success in this business isn’t as much about experience as it is about common sense and the willingness and the ability to work tenaciously toward the completion of a project. So, if you don’t have experience but you can show me that you have the drive, the discipline, and the common sense, I’ll give you a chance.
What sort of credit and financial stability do you require from the borrower?
We don’t have specific underwriting guidelines. As far as credit, I am not looking for a perfect credit score (though we do have quite a few borrowers with credit scores in the 700s). I am looking at a pattern of payment over time. If a person has had a few bumps in the road or even a BK, for example, along the way, this doesn’t bother me. What concerns me is the borrower who has consistently shown a disregard for debt obligations over a period of time. I probably won’t want to get into a project relationship with this person.
Regarding financial strength (net worth and income), my primary concern is seeing that the borrower has either enough income (stated) or enough cash or liquid assets (stated) to get through the project (even if setbacks occur). That means showing the capacity to (a) make payments for the duration of the project (if an interest reserve account has not been set up) and (b) weather a few bumps in the road if the project doesn’t go exactly as planned. Beyond that, we don’t expect our borrowers to have any great wealth. We know that they are in the process of attempting to build something, and sometimes that starts from practically nothing.
What is the term of your loan and how are the payments handled?
The term of the loan is generally one year, though if a project is expected to require longer, we can make a loan for two years or more. Payments are made monthly and are interest-only. If there is enough equity in a project, we can arrange to have some number of payments held in reserve and applied to the loan for the initial period of the project.
What are your rates?
For this sort of thing, rates generally range from 11-14%. The rate is determined by (a) the LTV, (b) the strength of the borrower, (c) the amount of leverage involved, (d) the merits of the overall project, and (e) the perceived volatility of the local market.
Does the borrower pay interest on the full amount of the loan or only on the funds that have been disbursed?
The borrower must pay interest on the full amount of the loan for the duration of the loan. The funds are being held in trust by Fairfield Financial on behalf of the borrower. As such, the funds are not available to the lender throughout the duration of the loan and thus the lender has committed these funds and cannot utilize them in any way or earn interest.
What fees are involved?
We charge a loan fee equal to 5% of the gross amount of the loan (sometimes this can be less). We also charge a doc prep fee (generally $675) and an account-servicing setup fee which is based on the size of the loan and averages about $650. We also charge a property inspection fee, which is based on the size of the loan and the location of the property (typically $500 for local loans). There are no hidden junk fees.
Can the fees be paid from the proceeds of the loan?
Yes, if there is enough equity in the project. This is frequently the case.
Is there a pre-payment penalty?
There is no pre-payment penalty (except in rare cases.)
What happens if there is money left in the construction account upon completion of the project?
Excess funds will be credited to the borrower at the closing of escrow.
What is the approval process?
There are basically four steps.

  1. The borrower (or a representative for the borrower) runs the project concept by us. If we like the project concept and feel that the numbers are acceptable, we proceed to the next step.
  2. We review a complete loan packet. We ask that this be sent via overnight mail or via email as an Adobe Acrobat file attachment. The packet should include the following items:
    1. 1003 for each borrower/personal guarantor
    2. Credit (tri-merge) for each borrower/personal guarantor (or permission to pull credit)
    3. Company financials if the borrower is an entity (2 years)
    4. A privacy notice signed by the borrower
    5. A purchase agreement (when property acquisition is involved)
    6. A preliminary title report (if available)
    7. A detailed line-item budget for all construction work to be done on the project
    8. Plans (for all construction loans, and for rehab loans that involve changes in the basic floor plan)
    9. Borrower’s estimate of the completion value of the project, and comps (or other value analysis) to support this estimate
    10. Photos of the subject property
    11. Borrower credentials
    12. A copy of contractor license, bond, and insurance (for all construction loans)

13.  If all this checks out, we ask the borrower for a refundable deposit (generally somewhere between $500 and $2000). The deposit should be in the form of a cashier’s check or money order. We provide a conditional Loan Commitment Letter at this time.
14.  If the property checks out, we draw up the documents and close the loan through escrow.
Is the deposit refundable?
If we close the loan through escrow, the deposit is applied as a credit to the loan fees. If we don’t close the loan because (a) the borrower does not or cannot perform or (b) the project upon inspection is significantly different than as represented, we keep the deposit to reimburse us for our costs. Otherwise, if Fairfield fails to perform for any reason, we return the deposit to the borrower.
How long does it take to put the loan together?
We generally ask for a minimum of two weeks from the time we review a project packet until closing.
– Clay (clay@privatemoneysource.com, 503.476.2909)
Vice President of Fairfield Financial, lending since 1964.  Currently targeting loans in Oregon and Washington, with potential to loan in:  AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield Financial for consideration: http://www.privatemoneysource.com/loanproposal.php

Promotion: December new broker special

December 7th, 2018

S. Clay Sparkman

As December typically slows down, we often find ourselves torn between (a) just enjoying the holidays, and (b) keeping the business up and running at an acceptable level. (I’ve been through 24 holiday seasons with Fairfield, and it seems like it is always a challenge figuring out how to strategically approach December.)

This might help some of the brokers out there: We are going to offer a special this month that might help some of you get files off your desk which you don’t know what to do with, and hopefully make a client happy and get a nice payday as well.

Here is how it works:

(1) This promotion is only for brokers who have not closed a loan through us previously. We are interested in forming new relations that may be mutually beneficial for many years to come. (Currently, I would estimate that 70% of our borrowers/brokers are repeat clients or come to us via word of mouth.)

(2) We will only be charging 2.5 points on these promotional loans. As a broker, that gives you more room to make more money on the transaction. (This is the lowest point-price that we have ever offered.)

(3) You must register by simply sending an email to me at clay@privatemoneysource.com with the words “REGISTER DECEMBER PROMO” in the subject line.

(4) The loan must be submitted to Fairfield in December (but not necessarily closed in 2018).

(5) The minimum loan size for this promotion shall be $100,000.

That’s about it. Let me know if you have any questions.

All the best in your endeavors this holiday season, Clay

– Clay Sparkman (clay@privatemoneysource.com, 503-476-2909)