I need some help with the understanding of using HML to acquire a property and the requirements of getting into long term financing.
In my opinion the ability to get long term financing becomes more important then the acquistional monies.
If I could get some help with some fictious numbers for both the HML acquistion and then converting to long term conventional financing and their requirements of monies and time in having the home purchase of (lets say ARV of 125,000) what is needed to make the conversion to long term financing happen??? …I appreciate your help…thanks Joe :banghead
To buy a home with Hard Money can take anywhere from 10% to 30% down depending on the market in your area and your experience! Take a look at this example:
$125,000 - FMV / ARV
$ 87,500 - Standard Investor Purchase Discount your seeking to get on pristine, updated property move in ready!
$ 8,750 to $26,250 Down payment required by Hard Money Lender!
$ 1,750 - Estimated closing cost’s on purchase!
$ 10,500 to $28,000 Total purchase cost!
Refinance
$125,000 - FMV / ARV
$ 87,500 - Non Owner Occupied Refinance! 70% LTV
$ 2,750 - Refinance cost with 1 point!
$ 84,750 - Net Cash out! Becomes your new 1st TD and pays off your HML and net balance paid to borrower!
Now the problem is today that lenders do not want to do cash out loans, to do them you have to have a seasoned property sometimes upwards of 1 year and your going to end up paying a higher interest rate and more in points for the cash out!
Right now it is very tough to get a lender to give you cash out for a refinance! So it is very hard to use hard money to buy thinking you can get the non owner occupied loan approved! Talk to a local mortgage broker about cash out refinances and whether there even possible to do in your area in this economy!
Your also likely to have points and requirements that cost money to get your Hard Money Loan not estimated here!
You are correct. The exit strategy is key to doing any deal HML or not. You have to be able to finance the house when you start or flip the house away. The problem that hard money solves is not the traditional guru sales pitch of no credit no cash, the problem it solves is to allow you to buy the house faster (you buy as if you have cash) and it will fund a house that needs extensive repairs and is not habitable. You still need to be credit worthy.
Gold…I really appreciate the breakdown using numbers that you gave me.
It makes alot more sence seeing it that way…
Note: I can also see there would be fixup costs…that would be additional to your numbers and coming out my pocket? Correct?
Question? In your experience…instead of getting a non-owner occupied loan, how about getting a owner occupied loan…would that be easier? Obviously, with a 70% ARV equity that would be in my favor. But would there be any issue with the HML getting cashed out with a owner occupied financing?
Yes any rehab cost's come out of your pocket until the property is refinanced. Some hard money lenders may consider loaning part of rehab cost's but they are becoming harder and harder to find.
Refinancing owner occupied requires you to live in the house and if I remember correctly it needs to be for 18 months before you can re-sell. Your going to have to sign a statement that your living in the property, whether you feel comfortable signing that Federal form is up to you and I don’t want to know what you choose to do?