Financing option questions

Financing, Hard Money Lenders, Private Money
1

I’m looking at different financing options for my deals. My MAIN question is, why would you use an HML or something similar with high interest / points when you can just get an investment loan?? I know the obvious that it can close quicker, but if for instance I’m doing a deal on an REO (where I get 30 days to close) or working with a seller that has time to close, WHY NOT just use investment loan? I also know banks often will accept offers that close quicker (such as HML).

  • HELOC. how hard is it to obtain one in TX?
  • HML
  • Investment loan
  • No interest credit cards, why is this a bad idea?? It seems like a good idea if you’re flipping a property and you have no interest for 1-3 years?
  • Cash, I’ve run across a few buyers that buy with cash.

What other financing options are there available? What is available to me as a new investor with a sole proprietorship beginning in mid 2007?

2

Hi Ballgum,

In general people use Hard Money Loans in order to finance rehabs that can’t qualify for conventional loans (i.e. if the house is not deemed “livable” in its current state, most banks will not lend on it).

HML’s expect the house to need rehab and provide a construction type financing where they fund the purchase and hold an escrow for the amount of rehab.

If you don’t have to, there’s no reason to pay the high points and interest associated with a Hard Money Lender, but sometimes as investors our liquid capital resources get stretched thin and we have to expand to the HML.

In the past, many investors would use HML’s because of their easy lending criteria. In the past, many HML’s were “asset based” meaning they were primarily concerned with the property and the deal. As long as you could fog a mirror (aka breathe) you could qualify as long as the deal qualifies.

That is something that has recently shifted along with the shift in the mortgage lending industry. Today HML’s have become far more picky about lending their funds out. Many of them require the same things a conventional lender would require because they want to ensure you can get out of the deal (and out of their loan).

I don’t know that it’s any different obtaining a HELOC in Texas. What makes you ask that?

I think no interest credit cards are a great idea, however if they’re in your personal name you have to realize that your “debt to available credit” ratio is going to go up, which also lowers your credit score. Ideally, if you can get no interest credit cards in your company’s name (meaning it has a different EIN), they’ll use your credit to qualify you, but then the company is the borrower and most CC companies don’t end up reporting on your personal credit report (in my experience).

With both credit cards and cash, a new issue we’re having is the inability to re-finance the loan if there was no lien put on in the first place. When you go to re-fi it looks like a cash out re-fi and those loans are becoming more and more scarce every day.

There are things you can when you first buy to take care of this. If you’re interested in more detail, hit my blog below and request a topic discussion and I’ll get into it.

It really is important for any investor who is planning to purchase, rehab, re-fi and then hold. Things have only VERY recently changed…and as investors, we change with the times.

I hope that has helped. I know financing is always a big mystery in the beginning.

Take care,

Stacy K.

3

Thanks for the reply Stacey!

So, in what ways should I work on getting pre-qualified (prepared) to make purchases (obtain no interest credit through my business bank acct, work with HML to get qualified, talk to local banks on getting prequalifed for investment loans??) ?

thanks

4

Hi BallGum,

Yes on all three, however my preference (if you can qualify) is to start with local banks. They are the most flexible and have the smaller costs associated with loan (in general).

My next move would be getting zero percent credit cards in your company name (keep in mind that they will pull your personal credit each time, so you will have some dings…just be aware).

Last, hard money - it’s the most expensive.

If you’re investing full time (or working on it) it’s smart to have funding lined up from various sources. I always seek to use the least expensive first…then work my way to the expensive money only when necessary.

Take care,

Stacy

5

Should I be starting an LLC in my co name BEFORE doing finances, credit cards, etc? Right now it’s a sole pro. with EIN bank acct… This would allow me to start growing my credit on my co name right?

6

Hey BallGum,company credit issues,are probably better discussed with someone from Dunn & Bradstreet,you need 2 yrs ownership in the company,first of all,my company has been around for 9 yrs,and still when i applied at my company bank Wachovia,i was denied,however Citibank issued me a $20K limit in a heartbeat,with no hassle.