Dynamics of the Hard Money Loan/Location of the Hard Money Lender

Hello to everyone reading this post, I am posting this subject in order to clarify my understanding in regards to the hard money/private money/hard dollar construction loan process. If there any other factors that I should be aware of please provide feedback?

One can expect that a Hard money loan entails:
a) paying 3-5 points of the as is value [loan origination fees]
b) 13-18 percent interest
c) the loan to value ratio can range from 50-65% ARV of property

One should try to obtain:
a) A hard money loan that has a short prepayment penalty
b) is assumable

Another inquiry I possses in regards to the hard money lenders or process is can it be preferable to deal with a hard money lender that is not located in the area you are doing business in?

Scenario: I plan to fix up properties in a state that the properties available to rehab is in the $200,000 to $300,000 price range. I desire to obtain a Hard money loan in the state. The hard money lender in that state is familiar with the market. Is it possible if I choose to utilize the services of a hard money lender that does not operate in the state I desire to perform rehab services, would it increase the probability of obtaining a loan this is more suitable for my investing interest?

Thanks again for reading this email.

Frequently Asked HML Questions

How does the program work?
HMLs provide Real Estate Investors access to asset based capital. We can fund quickly, typically within 72 hours of receiving the final docs from the Title Company. Hard Money is available for adequately collateralized loans on single-family residential houses and other Real Property including commercial projects.

What is the interest rate?
The interest rate depends upon the Lender. The rate will range from 14% interest only to 18% interest only annual interest rate payable monthly in most cases.

What Loan-to-Value are HMLs looking for?
Typically a loan does not exceed 70% of the after-repaired-value (ARV).

How long is the loan for?
HMLs typically write the notes from 6 months to 12 months depending on the Lender and your needs.

Is there a Pre-Payment Penalty?
Some HMLs do charge 3-6 mo. PPPs. If you rehab and resell the property there is NO PPP with DHLC

What are the costs?
Costs vary depending on which Lender you use. All loans will require at-least a Title Policy, Vacant Dwelling Insurance, Inspection, “As-Is” Appraisal & Flood Certificate. Most require origination points.

Can I get repair money?
Yes. HMLs can fund repairs. HMLs require a “Draw Request” form to be filled out to identify the completed repairs to the property, Copies of the invoices from the vendors. Then, we will pay you once the work is inspected-HMLs do not pay in advance for any work.

Does my credit matter?
Yes and no. For the most part, HMLs look at the value of the property after it is repaired, how much you are paying for it, and how much the repairs will cost to determine how much we will lend. In some cases, with your consent some HMLs may need to checkout your credit history.

How do you decide how much to loan?
Typical loans range from $25,000 to $1,000,000: All loans are considered on a case-by-case basis. Each HML has their own criteria.

Do HMLs need an appraisal?
Yes, HMLs require “as-is” and “as-repaired appraisals”.

Do HMLs require inspections?
Yes, HMLs require inspections including the interior before funding and before a repair draw to ensure the work is completed in a satisfactory manner.

Do I need to put any money down?
In most cases, Yes. Most HMLs want to ensure that you have enough resources to finish the repairs and cover the costs of the loan plus any surprises. Therefore most HMLs require that origination/discount points and other required items be paid at or before closing. We are confident that if you cannot afford to close you typically cannot afford to take out this type of loan.

How much will my payments be?
To figure your monthly payment simply, multiply the rate by the loan amount and divide that number by 12.

Will HMLs finance commercial properties?
Yes, many HMLs will on a case-by-case basis finance commercial properties and then only if the loan is secured by improved real property such as the building and land.

Will HMLs finance apartment buildings?
Yes, many HMLs finance apartment buildings however understand that it will take us longer to get our due diligence done.

Do HMLs allow interest to be deferred to the end of the loan?
Some HMLs do. Most however have interest payable monthly. Again, we are confident that if you cannot afford to make monthly interest payments you typically cannot afford to take out this type of loan.

How do HMLs compare to a traditional non-owner occupied investor loan?
You might be surprised how competitive HMLs really are.

Most HML are NOT assumable.

If the HML is willing to loan in your state and their terms are acceptable to you then it should not matter WHERE there offices are located.

Final Analysis

In many cases an HML can be obtained faster and easier then a conventional loan and while in almost all cases the amount you can borrow from a HML exceeds the amount you can qualify for from a convention lender the cost difference is minimal. HMLs are not for everyone and every HML has a different program and qualification process. However if you need fast access to capital for REI then a HML may be your new best friend.
Good luck and may all your investments be profitable!

Thank you for the information DHLC. May good fortune accompany you in your investment endeavors.