Need Help Understanding HMLs

I found this duplex property that is $160K. The ARV is about $250. It needs about 30K in repairs. I am a little confused as to how to get financing. I am thinking about buying and holding this property because it is in a highly appreciating area, however,I was rejected today because they say my debt to income ratio is too high. If I cannot get financing for me to hold it, then…:

  • Would I get a mortgage from the HML for $160 plus the cost of repairs.
  • Would there be a problem with seasoning the loan if I get the from HML - will the new buyer be able to get a mortgage.
  • Do HML require you to pay on the mortgage as you are repairing the house?
  • A HML sent me a prequal letter that said I was prequalified for a rehab loan - does that imply that they will not loan me the entire amount?
  • How do I calculate the amount of interest I could end up paying a HML for the loan, if borrowed for 6 months.
    I am really confused on the role of HML as compared to coventional mortgage companies. I know it is a lot of questions, but I am sure someone can straighten me out. Thanks

Your best bet is to contact a HML as the “rules” vary from lender to lender. In broad, general terms they loan money based on property equity. The usual cutoff is 65-70% LTV. They charge 12-18% interest and 5-7 points. The repair money is usually held in escrow and released as you spend it on repairs. As you can tell, there’s a lot of ranges given here.

Sometimes you can borrow the entire amount you need including the 6 months of payments as long as the LTV is good. You’re already at 76% LTV though (taking purchase price plus repairs).

Even if you pay at the lower end of 5 pts and 12% interest, your financing/holding costs are $9,500 in points plus $11,400 in interest. That doesn’t include utilities and if you have to pay property taxes while you hold it.

Thanks Marcus. It looks like the number don’t work, but I really want this property. It is close to downtown and I know in about another year it will appreciate by 100K or more because of what is happening around it.

The numbers are the numbers. Never BET on appreciating values. If the numbers don’t work now then I don’t know what to tell you