Hello, Besides using hard money to get rehab money, are there any other ways to pull equity out of the home to use for rehabbing? I am in TX.
I assume HELOC and loans are out of the question? Or cash out refinancings?
Would it be feasable to purchase a house with hard money and then turn around and refinance it to pull cash out? Im still pretty new at this stuff. Not really sure the best way to go about it, any suggestions would be greatly appreciated, thanks
Maybe a few more details would help us to help you
-Purchase price (or if already owned currently, loan amounts)
-Market value and/or appraised value
-can you qualify for conventional loan?
-cost of rehab work
-Purchase price 98K
-Market Value should come in around 184K
-Yes I can qualify for conventional loan (720 Fico)
-35K estimated repairs to bring back to full market value
The house does fit the numbers for hard money, but I was just wondering if you guys do anything different? Does everyone use hard money to purchase and Rehab? or is there another way to purchase and get rehab from somewhere else? or…?
Why pay the high rates of hard money?? ??? Sounds like it will qualify for conventional financing. Conventional 1st Mortgage plus a HELOC. Is there a reason you don’t want to go that route (other than paperwork?). Call it a second residence (or investor property for that matter), get the lowest closing cost 1st mortgage that you can. Take out a HELOC for the renovation. Sell, or rent the thing when you’re done.
awesome! See i didnt know if that could be done or not. So the HELOC would be sorta like a second mortgage? and how long does that generally take to close and how much.?
Yeah, the HELOC is a second mortgage, but is a line of credit. You only pay interest on the amount you draw. The interest rate adjusts monthly and is tied to Prime. You should be able to get a 5/1 interest only first mortgage for the full purchase price of 98K, depending on what the current appraisal is. What is its current appraised value do you think?
A conventional alternative that I’ve come across is offered by Wells Fargo and is called a Purchase and Renovate mortgage. They loan up front based on the improved value of the property.
This all presumes you can wait the amount of time that conventional financing takes (20-45 days sometimes), and can jump all the hoops they put you through.
Maybe I missed something but I didnt see anywhere that you mentioned if this was going to be an owner occupied property or invesment and if investment, how long you planned to hold. Let’s assume for now that this is investment as are most the deals on the board. In the state of TX you’ll have problems getting more than 80% if owner occ anyway.
You should be aware that if you open up a heloc that it will be based upon the current value and not what the future value is when it’s fixed up.
If your doing rehabs there’s always 2 values you’ll need to make your broker aware of. The current as-is value and the after repaired value.
So you mentioned that the value should come in around $184,000. Is this once it’s fixed up?
For example, if the as-is value is $135,000, then the line of credit would be based on that which wouldnt leave much. Helocs for investment properties dont have high ltvs. Typically around 80%. So 80% on $135,000 is $108,000 and your first would have already taken up $98,000 of that. Follow me. If the current value truly is $184,000 then your probably ok for the heloc.
Other things you’ll need to consider. You said you can qualify for a conventional loan. This wouldnt really be a conventional loan if investment. Your talking about 100% financing on the $98,000. When you look at high ltv financing a # of factors other than your credit score are critical to determine if a loan is available. How long on your job, will your income be able to support everything, how much in liquid assets do you have…etc.?
One thing also to consider. Your putting a decent amount of repairs into the property. The wholesale lenders we’re talking about need to make sure the property is an at least average habitable condition. If not, they wont loan on it. In that case, you’ll need a rehab loan.
This can be offered by some of the traditional lenders we use as brokers. One of the lenders, Wells Fargo, was already mentioned. The only problem with these loans is that you may need to put down 10%. Plus qulifying and the length of time to close can be tedious.
Your other options would be soft money and hard money rehab loans. These loans are truly based upon the after repaired value and can be up to 70-80%. Payments, costs, rehab funds, and purchase can all be rolled in and can be funded in around 2 weeks. Some dont even require any income or asset verifications.
Thank you for your much more cogent response than my hurriedly typed ones. It might be helpful to him to know the relative difference in interest costs between conventional and soft/hard money loans to help him decide if he has (or can make the time) to wait for the conventional products to be processed. As you recognize, depending on his current status and intentions for the property, he has additional options that are less restrictive than investor loans. He could call this owner occupied and/or second home and qualify for higher LTV’s and more favorable terms with a conventional lender.
By the way, what is “soft” money as opposed to hard money?
- We try not to quote terms offered by wholesale lenders without obtaining information and credit from a client first. We find it unprofessional as it could be confusing if something within the lending guidelines doesnt match up with what we originally discussed.
In general hard money and soft money will have higher costs and rates associated with the risk of such a loan.
Hard money doesnt really look at credit scores or verify income or assets. Loans are usually up to 70% arv, around 14%, and 5-6pts.
Soft money requires a credit score around 620 and proof of the ability to make payments by showing tax returns and/or bank statements. Ltvs of 75-80% arv may be possible. Rates can range from 11%-15% with points from 4-7.
- Most importantly, a client shouldn’t be calling the property anything other than what it is going to be. If you intend to live in the property then the lender needs to know that this is an owner occupied loan. In TX, getting more than 80% of the value may not be possible for OO. If this is an invesment property than it should be disclosed accordingly.
Can you give us both a good explanation of “soft money”? Is it just another name for conventional financing? Or is it a third animal - conventional, soft, and hard money? If a third animal, how does it differ from the other two?
Ok heres the scenerio.
I found a property thats really close to the austin area here in TX. Its an REO and the property has been sitting for a lil over 90 days. The asking price for the property is 98K, I put a bid on the property last week for 80K (highly doubt it will get accepted, but its a starting point). The comps in the area say that the house will go for 184K after repairs. The house needs about 35K to be put in tip top condition. Getting a hard money rehab loan on this deal does not seem to be a problem. My plans are to buy, fix then flip. And it will be a non-owner occ. investment property. Ok so lets say that I don’t want to go with hard money. My broker says he can get me 100% financed no prob because im dealing with a 720 fico. So if i went that route then where would I be able to come up with rehab money? You guys have already mentioned a HELOC, what about a construction loan? and where can I find soft money? How would you guys go about this deal and how do you guys primarily go about this? This would be my first flip so I really don’t have much capital yet. Any suggestions would help, thanks
There’s all kinds of way to do it - many of which I’ll likely not even think of. Kinda depends on your situation and time frame. What’s critical to an answer is the current market value of the property - and in particular not the improved value. If you’re not sure, then perhaps your broker can help? Even the bank who REO’s it should have an idea of it’s current market value. They may even be a source of funding - won’t hurt to ask. Regardless, if there’s enough equity in it currently, you may be able to get first and second conventional loans (provided the REO department is willing to wait). If not, fall back on hard money for the rehab money and get the purchase price 100% conventionally financed.
I don’t know of any hard money lenders that lend in 2nd position. I have only seen 1st liens only. Otherwise that would be great to 100% conventional finance, and get hard money for rehab. Also this property should have an ARV of 184K and this property is appraised at 154K through the county. So I’m assuming an independant appraisal will be higher then that. So im pretty confident about the comps being correct at 184K
Have you checked out any local banks in your area? That’s the first thing I’d do.
I dont think the heloc route will work. You still havent addressed what the current value is other than what the county assessed it at. Probably around $165-170k, maybe it’s worth the $184k right now without even doing anything. We dont know unless you tell us.
How long have you been on your job?
Do you have enough income to support the monthly payments?
How much in liquid assets do you have? Were talking about funds that have been in checking, savings, 401k, stock, etc for at least the last 2 months.
If you have the 10% to put down, then getting a conventional rehab loan may be an option. Those can take 5-6 weeks. Lender usually requires a general contractor to do the work.
***I should add in here too that I dont know of any HML that loan in 2nd position either.
If his first is for 100K, it appraises for 150K (maybe more), then why wouldn’t he be able to get $35K in a HELOC which would put him at a CLTV of only 135K/150K (90%)?
I used hard money in broad terms, probably incorrectly - could be a partner.
Most helocs on NOO will go to 80% with full doc. So if you use the assessed value and a purchase price of $98k as mentioned, that only leaves $25k
And that’s why he has to buy it for 90K instead. Or why he needs it to appraise for 165K. Or why he needs to do the repairs for $25K. Or why he needs a partner ;).
Speaking about checking out local banks - why wouldn’t the bank that owns it be a possibility to ask to do the financing in conjuction with the REO sale?