What are the Different Types of Transactional Funding?

Transactional Funding – Learn the Basics

transactional funding
3 Types of Transactional Funding

There is a lot of confusion about transactional funding among new investors.  It simply sounds as if funding a deal, whether hard money or in one day, is all the same.  In fact, there are a number of types of fundings that are called “transactional” but they are not what is the industry standard for this term.  In this article we will omit gap-funding, bridge funding, owner occupied residential funding and any commercial loans other than the types that follow:

Type #1 – Transactional Funding is normally associated with a “double closing” in real estate transactions.  The lender will fund 100% of the buyer’s cost to close the A – B leg.  The ideal situation is where the two closings (A – B and B – C) take place with the same closing agent on the same day.

The original seller designated as “A” in the closing sequence sells to the investor (“B”) who in turn sells to his end buyer (“C”) and the transaction is referred to as an A – B and B – C or a double closing.

The closing agent on the A – B transaction can also be a different closing agent than the B – C closing agent.  This is very common in short sales and REOs (Bank-owned properties).  In some states the recording of the deed is not done electronically into the public records and in these cases the B – C closing will be delayed by days.

If the same closing agent is doing both “legs” of the A – B and B – C closings electronic recording doesn’t matter as he will instruct the county clerk to record the two deeds (A – B and B – C) in the proper order.  Occasionally a clerk or the closing agent will make a mistake and record the deeds in the incorrect order resulting in the investor showing as the owner of the property!  This is easily corrected by the closing agent.

In summary, a “true” transactional funding is done on the same day or a couple of days deferred on the second leg (B – C).

Type #2 – In this situation the B – C leg is deferred for any number of reasons, including but not limited to – end-buyer changes his mind, end-buyer can’t get his funding timely and sometimes the sale has a deed restriction.  A deed restriction is simply a contract covenant that stipulates the buyer cannot resell the property for a specified time period, typically 30, 60 or 90 days.  This is often referred to as “Extended Transactional Funding” for obvious reasons as the closing of the B – C is extended for hopefully a specific and limited time period.

Extended transactional funding is usually twice as expensive as transactional funding since the lender carries the risk of the end-buyer defaulting and the property not being resold timely.  As a transactional-type funding moves into two or more months, you now will likely have to get a hard money loan.

Type #3 – Hard money loans are what investors are most familiar.  In this case the lender will lend for months or years with a typical expiration of one year on his mortgage and note or deed of trust.  In these loans, the property value is carefully evaluated, the investor must have 10% to 20% of the purchase price to close and many hard money lenders require credit checks.  The final loan costs can easily be 5 to 10 times more than transactional funding because the points and monthly interest charge can easily exceed the cost of a complete transactional funding.

In summary, know that your end-buyer is “strong”, committed to closing and that he can close timely.  Get a Proof of Funds (“POF”) online or otherwise so you can overcome Realtor® objections to this potential deal killer.  Always try for a same day or double closing but if you can’t do it, make sure you have options for funding your deals at the last minute.  Very often lenders doing short sales only tell the investor/buyer the day before the closing that there is a deed restriction!  To see more transactional funding examples. visit https://transactionalfundingfl.com/transactional-funding-video-examples/

PS – If the A – B closing agent is designated by someone other than you, don’t ask if their closing agent will do a double closing or you may quickly find an uninformed closing agent or seller who thinks you are doing something illegal!

To your limitless success,

Dave Dinkel

Visit transactionalfundingfl.com for full privacy policy, terms of use, etc.  Be sure to contact us through the website at transactionalfundingfl.com if you have questions or concerns (support@davedinkel.com).  Results mentioned in this presentation and any video, article, and/or material related to Dave Dinkel and his associated businesses are not typical nor are a guarantee of any earning potential.  No advice is to be construed as legal, accounting, or professional advice EVER.  Please consult related licensed and qualified professionals before taking any action.  No person(s) mentioned in the articles and /or shown on videos received compensation in any form for their opinions.
About Dave Dinkel 27 Articles
Dave Dinkel graduated from the University of Florida in 1968 with a BS in Chemical Engineering. He initially worked for a petrochemical research and development company in Illinois. Later he entered the financial arena as a stock and commodity broker with Merrill Lynch.While a stock broker he became a Certified Financial Planner and later started his own brokerage firms and stayed in the financial services industry for 22 years before retiring to pursue his love of real estate investing. After retirement, and because of his interest in business start-ups, he worked with a small company for a few years while driving their sales from under $12,000,000 to over $150,000,000 annually before going back to full-time real estate investing.Dave Dinkel has been a national platform speaker, contributor to local real estate clubs, mentor and consultant to numerous real estate investors and all the while running his own real estate business. Mr. Dinkel received the following degrees or designations: BSChE, FINOP, CFP, MSRP, RSP, RR, ROP, SROP, MGA, GA, Certified Estate Planner, Licensed Mortgage Broker, and Licensed Insurance Agent. He is often referred to as the “Teacher of Teachers” and his Mentoring continues to produce Students who go on to be national real estate "Gurus". .He has been a real estate investor since 1975 and recently received the first-ever Lifetime Achievement Award for Contribution to the Real Estate Investing Community. While being active in real estate investing for over 40 years, he and his wife Nancy have been married for over 52 years. He is most well known for the development of his Mentoring Program that has been called, "The Best Mentoring Program in the Country" which he continues today.In addition to his Mentoring Program, he started a full-service transactional funding Program so that new investors had the ability to do deals with no money of their own. He challenged the funding industry by making borrowing money very simple with his "One Point Funding Program" which has revolutionized the transactional funding industry and made millions of dollars available to investors who otherwise could not have afforded it. Currently his transactional funding is only available in Florida.Get more information about his real estate investing mentor program at http://www.DaveDinkel.com