Hello again, I have some questions about closing costs and the hard money process. I will like for the hard money lenders to provide me with some feedback. I will express my inquires by providing an example:
Purchase price of property-$120,000
Rehab Costs: $50,000
A.R.V.- $200,000
Let’s suppose that the hard money lender is charging 4 points for the investor to obtain the loan and the lender will provide the loan at 65% L.T.V.
65% of the A.R.V.-$130,000
Points/Loan Origination fees-$5,200
The money that will be provided to the investor at closing will be $80,000, with $50,000 dollars placed in escrow for repairs
My questions are:
Does the investor have bring the difference beween the purchase price and the amount provided at closing for the down payment?
(In this case, the amount of $40,000+$5,200 in loan origination fees)
Loan origination fees/points are not the only fees associated with obtaining a hard money loan. Is there a way to accurately calculate the other fees (closing costs) that will be associated with the loan?
[Example: Underwriting fees, appraisal fees, paying property taxes, etc can be estimated to be 3% of the loan? (excluding points)]
Please note: Some HMLs , such as DHLC, will provide 70% LTARV financing for 5 points
65% of the A.R.V.-$130,000
Points/Loan Origination fees-$5,200
The money that will be provided to the investor at closing will be $80,000, with $50,000 dollars placed in escrow for repairs
My questions are:
Does the investor have bring the difference beween the purchase price and the amount provided at closing for the down payment?
(In this case, the amount of $40,000+$5,200 in loan origination fees)
Loan origination fees/points are not the only fees associated with obtaining a hard money loan. Is there a way to accurately calculate the other fees (closing costs) that will be associated with the loan?
[Example: Underwriting fees, appraisal fees, paying property taxes, etc can be estimated to be 3% of the loan? (excluding points)]
OK. If your ARV (In your example) is $200,000k, @ 65@ LTARV you max loan is $130,000 for Rehab and purchase.
If your Rehab is $50k the max that will be loaned toward the purchase price will be $80000 and your 4% Orig will equal $5200.00 (4% of loan amount)
Typically the closing costs (Title insurance, fees etc) will be about 1% of the loan amount. $1300.00
The Hazard Insurance cost vary but you can also expect up to 1% of the loan amount for 12 mo. coverage with a prorated refund. $1300.00
In Texas you can expect the Appraisal to not exceed $350.l00 in this example (for both an AS-IS and ARV appraisal). The inspection will be $0.10/sf or about $200.00 - $250.00
Some HMLs will require a Home Warranty (get the seller to pay for this). It can save you $$ during rehab and will make the house easier to sell. Est $305.00
You will likely have some Doc Prep fees ($250-$400).
That should cover everything. So expect to bring $48,300 +/- to closing. You may also be charged “Per Diem” interest through the end of the month so be prepared for that. (That means if you closed on the 15th you would not have a payment dues until Aug as you have prepaid the interest accrued in June (payable in July).
Thanks for the responses to my questions DHLC. The following are the ideas that have been conveyed because of your responses. Any other suggestions or corrections will be appreciated.
Yes, the investor will have to bring $48,300(+ or-) to the closing table to secure the loan.
The $48,300 is the entire down payment, How much of this down payment will be the rehabber’s equity in the home?
If the investor in this scenario opted to borrow up to 70% of the A.R.V., this will help to minimize the amount of money that he will have to bring to the closing table.
a) Purchase Price-$120,000
b) Rehab Costs: $50,000
c) A.R.V.-$200,000
d) Lender will provide funding up to 70% of the A.R. V.
e) Down payment (Approximation)-$30,000 (not including points and other fees that you mentioned in your repsonse)
If an investor hopes to minimize the amount of down payment that he has to bring to the closing table, he should seek to borrow up to the maximimum percentage allowed and accept lower contractor bids. (Although this will result in higher monthly loan payments)
100% of any equity in a deal above and beyond the loan payoff is always the borrower’s
3. If the investor in this scenario opted to borrow up to 70% of the A.R.V., this will help to minimize the amount of money that he will have to bring to the closing table.
a) Purchase Price-$120,000
b) Rehab Costs: $50,000
c) A.R.V.-$200,000
d) Lender will provide funding up to 70% of the A.R. V.
e) Down payment (Approximation)-$30,000 (not including points and other fees that you mentioned in your repsonse)
If an investor hopes to minimize the amount of down payment that he has to bring to the closing table, he should seek to borrow up to the maximimum percentage allowed and accept lower contractor bids. (Although this will result in higher monthly loan payments)
That is a fairly accurate assessment. However the difference in payments between a 65% ARV loan and a 70% ARV loan are minimal. Also don’t just take the lowest bid…take the bid with the best value (speed and quality)
Looks like from reading posts on this forum that most Hard Money Lenders lend out money up to 70% LTV.
Let’s say that I want to purchase a house that costs $100,000 so I borrow $70,000 from a HML. Can I borrow the remaining $30,000 from another HML so that I don’t have to come up with any of my own money since I don’t have the money?
Or even borrow $50k from one and $50k from another?
I’m trying to purchase property and rehab without dishing out a single penny out of my own pocket. I don’t mind paying the interest as long as the interest paid is taken out from the sale of the property and not in advance. Do people loan money based on this condition where any interest accrued on a loan is paid at the close of escrow rather than up front?
You are missing the point. You want the Purchase Price of the House and the needed repairs to equal not more than 70% of the Value of the property once it is repaired. That way a HML will be able to lend you 100% of the purchase price and rehab costs.
HML’s want to be in 1st lien position so they will not be willing to lend you the rehab $ if someone else has the 1st lien already.
I never understood that that is how it works. I’m glad I asked and thanks for your response.
So basically, any expenses that are part of the transaction (closing costs, repair costs, hedge expenses, etc) should be within the 70% limit? I want to make sure that I don’t have to use ANY of my own money but just use OPM.
Correct. However typically the points and closing costs, insurance etc will not be part of the loan. The HML will want you to have SOME money in the deal…albeit very little as a percentage of the total deal.
Since I’m cash poor, would you recommend using a HELOC for the “SOME money in the deal”?
My exit strategy is going to be buy-fix-sells so I’m looking at a 3 month turnaround from date of purchase. This is so I can pay off any debts (HELOC and/or any loans) as quickly as possible. Is this a realistic time limit for California right now or what do you recommend?