Need Help Understanding HMLs

Financing, Hard Money Lenders, Private Money
1

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…:
Questions:

  • 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
2

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.

3

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.

4

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