HELP!..in desperate need here. I’m working with a hard money lender to close a deal (that needs to close in 2 weeks) and here are the terms: term: 12 mths, origination fee 5% of loan amount, mthly payments based on 20 yr amoritization, 3% exit fee (at loan payoff), 1st position lien on investment property AND 2nd position lien on MY HOME, add’tl title insurance fee (xtra 25K), I will need to have $8K at closing and the HML will hold $5K as security deposit.
My question is…do these terms seem fair as far as HML’s go? and do HML’s negotiate terms…I already have a 2nd mortgage on my home and the HML is only proposing a loan of 58% of the ARV, while they puport to lend 65%…I’m getting frustrated and am just about ready to assign the purchase contract…but I only have two weeks! Thanks for any help you can offer. :-\
I am not sure what kind of Hard Money lender you are dealing with, but either this is an unusual loan or I would look for another lender either now or for any future HM loan you might need.
Hard Money Loans are almost always short term, 6-18 months with 12 months being very common. Because of this fact (and you stated you loan is 12 month), they are almost always Interest Only. Why amortize a loan of such short duration? So, why the 20 year amortization.
Most HM lenders want a borrower to pay the money back ASAP so they can loan it out again and make the large fees they get for funding a new loan. Therefore a 3% prepay penalty is steep and seems unneccessary.
5% to do the loan is normal. You can find lenders that will charge a little less but you can also, definately pay more.
With that said, Hard Money loans can also be called Hard to Do Loans. Therefore, the people with the money can ask about anything they want as long as they stay within the law.
Well so far I’ve paid $650 for an appraisal and “administrative fee” collectively. My loan will go to underwriting once the appraisal comes back. So far it seems that as long as the appraisal comes back at the right #, the loan should close on time.
My question is, is there another route I could have taken before expending $650 and having the risk that the ARV appraisal may be short. What’s a good way to tell potential ARV’s other than comps. The property I am buying is the largest one (and also quite unique in design). So I am really not sure what the ARV will be. Thanks for any help you can give. :-\
Well if you decide to use the same hard money lender again I would flat out refuse to pay any admin fees up front. From my experience the only two things you should have at risk is cost of an appraisal and the cost of an inspection. Not to get off the topic but my experience is that an inspection spots a lot of potential huge issues that could turn a deal to a looser. It also brings up a lot of little issues that give you leverage on your purchase price. Getting an accurate ARV is the age long discussion and one of the biggest challanges in the hard money lending business. The bottom line is ARV is what someone is willing to pay when you get done fixing it up. If you can’t document that, comparables are the only other widely accpted way.
Of course their negotiable…that’s why you go to a hard money lender.
Have you tried making some phone calls to the HMLs in the Investor resources column of this site?
If you are not comfortable witht the terms then you need to be straight with your lender and tell them so.
maybe it isn’t a workable deal…maybe it’s costing you more than your’e benefitting. If the deal fits and your just quibbling over the costs, then maybe your not that interested in the property…
you could have saved upfront on the appraisal by having it rolled intothe loan, same goes with all the other junk fees.
the reason you got the fees in the back is because your lender was trying to keep your terms from slamming you in the front. when you get paid, he gets paid. You should probably give him some credit since it sounds like he is about 5 steps ahead of you on what you need to make the deal fly.
Bottom line: Is it what you need? Is this an opportunity that is worth funding? If it is, then sign the papers and start making some money. If not, pull out of the deal.
Thanks to all for your very informative responses. Just thought I’d give you and up-to-date on the deal:
House cost 86K; appraisal came in at 170K (which I believe to be quite low considering the property is 3800 sf and has 3 parcels (including 1 add’t vacant lot right next to it on a street where it is house after house). Right now my closing must take place this Friday and I’m trying to see if I can get the appraiser to raise the value based on the additional lot.
Well getting the addional lot that is not connected to the house may be tricky I would just have a separate value done on the lot HML should know that when you do the deal that will get the lot with the purchase of the property and should be a compensating factor.
If you have to get it done by friday I would move fast on this.
I would suggest that you use a friend, family or HELOC to do this have some one that has a 401k or IRA or HELOC that wants to diversify their account and pay them for the money either up frount or when you sell the home that would be your best bet for fast, cheap money.
Sounds to me that you need fast, effective money…you need a bird in the hand.
Looks a little too late to bargain shop. Friend and family funding has a high rate of remorse, especially when dealing with deadlines. Fast cheap money is not in the cards here…
Hopefully, you are dealing with the lender directly and not through a broker or other middleman…if so, talk to that person about your concerns …see if you can talk on a person to person level. The advantage of HMLs is that you can get up close and personal to your money source…your lender might have some sage input to offer.
If the lender has a take it or leave it attitude, then you should rush out and line up another lender …lot’s of hard money would like this deal…