I am new to the real estate investing. I bought two homes and I want to buy more with the way the economy is my bank took away my unsecured line of credit. I used this LOC to purchase homes and repaid it back ontime and early.
I was about to close on another home but the bank decided to close the LOC and now I am unable to purchase this home due to the fact that I have no funding.
my question is is it worth getting a hard money loan to continue my shopping spree in buying homes. and how do I get a hard money loan?
I suppose you have to decide whether it is worth it. Your costs are going to be in the neighborhood of 5 points and 15%.
Figure out your exit strategy and calculate the expected profit after hard money costs. Then decide if it is worth it.
Do google searches for Hard Money Lenders. Some larger ones are nationwide or at least multi-state. Most smaller ones (like me) only lend locally.
Most will not lend more than about 65% of value. Most will want you to have some money in the deal. Most will look primarily at the value of the property but will also look at your credit for any serious red flags.
Around here most hard money lenders will only lend 65% of purchase not arv. Hard money is getting hard to get. Hard money is supposed to be easy money.
What?? Hard money is called hard money for a reason. It isn’t easy to get. Even when soft money was easy, the boards were full of investors posting “Need Hard Money”. It has always been hard to get.
Before I was a hard money lender, I did many deals that qualified for soft money from banks. Never did one that qualified for hard money.
Any Hard Money lender who makes his money easy to get is not in business for long.
I guess it deponds on what your comparing it to. You have a much better chance of getting hard money on a rehab house than you have of getting conventional financing. Thats why I say it was supposed to be easier.
My question is why would you want to use a hard money loan. You were obviously able to get a line of credit, so based on that its my assumption you should qualify for a conventional non-owner occupied loan via Fannie Mae, or Freddie Mac. The down payments would be much lower, and the rates would be extremely low and there would be no need to refinance it down the road.
LOL…Sorry I would normally never post on this forum and Im a private hard money lender…This comment hits a nerve though…People often criticize hard money,the rates,the ltv etc…
Lets flip this around a bit…Now you are the one who is lending the money…Would you lend on ARV? or LTV or the actual buy price?..Yeah thats what I thought (LTV of actual purchase price)…And I suppose you would freely lend your money out at %10 vs %15 and 5 points…See where Im going with this…More often than not people wasting our time have champagne taste with beer pockets…We expect the borrower to have over %40 of THEIR OWN MONEY into every deal we fund…Or they get denied…I could care less what ARV is…Lending based on ARV is a recipe of going broke and out of business as a HML…The most common practice is some bonehead trying to say his house is worth 200k when every house on his block is worth 100k…Oh I put this and that into my house…I could care less…When this guy defaults and I have to record the deed I hold in escrow Im fire selling it against compareables not ARV…
I am an HML and I agree with some of what rookie says. Investors would be smart to put themselves in the position of any lender to understand what their perspective is and learn how to structure deals and propose deals in a way that makes sense to the lender. VERY FEW of them do this.
IMO, though, almost no HML requires 40% of an investor’s capital in the deal. It depends on the deal, but I have never required more than 20%.
Also, I don’t know alot of lenders who lend on the “purchase price”. They lend on FMV. If you assume the purchase price is FMV, you expose yourself to alot of fraud risk.
It is frustrating for an HML when investors overexaggerate values, underestimate costs, etc. but that is the nature of the business.
eric3,
Let me clarify a few things…First off when I say base it on purchase price (aka new purchase,not past purchase price) I will give an example…When I say a new purchase I mean this…I have a client who bought a home for 300k…The purchase goes through my attorney to verify everything…They put 150k of their own money into the purchase and I lend the balance…I hold the deed in lieu for the term of the loan…
I also like to have atleast %40 equity and or funds,cash etc into a property for me to fund…In the event you have to take back a property how does %20 that you ask cover lawyers fees,rehab if there is damage,recording deeds,RE brokers comms if I have to sell and depreciation of the market…So how you lend at %80 LTV is far more risky…I also represent a consortium of hedge funds that partake in some of my larger deals that Im unable to fund with my own capital and NO ONE would touch an %80 LTV loan with a 100 foot pole…I have funded 20 loans using my own capital and NONE have gone bad or cost me any money…Point being is that the more skin in the game the borrower has the more secure my money is…I dont want to take any properties,all I want is my money returned plus my interest…
I also do a thorough evaluation of the value of comps around the property seeking financing to determine FMV…Appraisals,comps,tax assessed value,online sites etc…I can assure you with a %100 win rate Im very thorough…And to reiterate my earlier comments I never ever lend on ARV…I could care less if the person was gifted the house for %50 of FMV…In my eyes if a person is gifted a 200k house for 100k and wants 150k in hard money they have 50k reasons to walk away…Im also very choosey…If the deal doesnt have enough collateral and curb appeal I deny it…My people that feed me deals know I dont fund wood…I have a laundry list of types of properties and scenarios I wont fund…And yes I like to lend to people with money.
I don’t lend 80% LTV either. You had just indicated that you required investor down payments of x%. In a typical deal I do, an investor is going to be buying “wholesale”. In other words they are buying at 80-90% of true FMV. (they always think it is lower than that)
Then I require 20% DP from the investor which takes my loan down to 60-70% LTV. That is comfortable for me.
Some states have much higher costs of foreclosure than others. Sounds like NY is a high one so you feel the need for more cushion.
That is fine.
It is moderate in Illinois. If I lend at 70% LTV and check on the property periodically to see the rehab is going well, there is no way I am going to lose $ when foreclosing. Actual foreclosure costs are much less than people realize but the time is the hassle.
All I was trying to get across to the OP is that diff HML’s have diff criteria. Your post made it sound like your criteria were universal. I know lots of HML’s who have even looser ones than I do.
You know, I thought Hard Money was called Hard Money because of the rates. It was suppose to have very little in the way of qualifying, but have exorbitant rates and points.
lummov
Hard Money is decently easy to get if you have a good amount of equity and or cash money to invest into deal along side your financing…If you are attempting to borrow on ARV or along those lines I would say don’t waste your time…Hard Money is collateral based lending…U can have marked credit but have collateral and or equity and get a loan…
Johnhary
I agree…The rates are irrelevant if you are buying right…And as the RE/Lending process should have been all along, if you have money to put into a project you will get funding…However I have debated this issue with rehabhardmoney…I would never lend the way they do but if it works for them that’s all that matters…A recipe for disaster or default with no equity is lending to someone with not enough skin in the game…Give someone the option to make you the loser on the deal they will walk and leave you the bagholder…When they have a lot of skin in the game its unlikely they will do that…And if they do you have a profitable default…