11/14/2023 0 Comments Gap funding lendersAs a second position finishing loan, you come in on the back end. The project has already started and may have run out of money. ![]() Often, when the borrower is without a capital partner, they seek a second position loan to close.įinishing loans come in much later in the project. The primary lender is going to want the borrower to have some skin in the game so it’s much less likely that they will walk away from the deal. Gap funding is often sought when borrowers need to find cash for closing. Secondary loans are usually one of two different types, gap funding or finishing loans. While the amount of money is smaller, risk of loss is still present, so you shouldn’t write off risk completely. However, the second position loan is not risk-free. This will most likely result in the 2nd lien holder getting a deficiency judgment.Īs the bulk of the total loan amount on the project, the first position loan carries the most risk. The second position loan can initial foreclosure proceedings, but it has to inform the first position lien holder – who can object – especially if they are still getting paid. That is, if there is anything leftover to even go after. In a foreclosure situation, it is only after the first position loan is satisfied that the second position loan has a chance at anything leftover. They will have first dibs to recoup as much of their loans before any other creditors get a piece of the pie. ![]() The first position loan, as the primary creditor, has the right to foreclose if the loan goes into default. Second position loans are often in the range of $20,000-50,000.Ī big difference between the two loans is that the first position loan has all the legal rights. Second position loans are typically for much smaller amounts. Primary loans can also consist of acquisition and rehab.Ī second position loan is a mortgage that is secondary to the first position loan, it is subordinate. For example, if the borrower has already purchased a property with cash that they plan to rehab and they need $170,000 for the renovation, then that would be the primary loan. This loan is usually the bulk of the money the borrower has on a particular property or project. A first position loan is just like it sounds it is the primary loan.
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