I have found a bank owned property here in San Diego that needs about 20k worth of rehabbing to make it attractive to sell quickly at $120,000-130,000. I believe that the bank will accept an offer of around $60,000. To make the offer, I have to have a Proof of Funds Letter. My question is how can I find a hard money lender that will work with me on this? I have already contacted several who want me to show that I have $20k in the bank, which I don’t.
What you are telling them is that you want to borrow over $80K on a house with an ARV of 120K. And that is assuming you are right on your budget and the ARV. We know that investors always underestimate the cost of repairs.
You aren’t going to find any HML’s lending 75% of ARV especially when you’ll be going back for more cash when you go over budget. They want to see you have some skin in the game to bring the % down.
You are going to need a partner who brings some cash to the deal.
I am going to agree with Eric on this. I think that Hard Money Lenders are going to want you to come up with the money to take care of the reparis. There are some hard money lenders that will allows you to put the repair cost on a credit card, Home depot account, or getting money from family and investment partner or friend. But in some form or fashion you are going to have to find the money for repairs to get the deal done. Lenders will very if they want you to have the money, or if they will alow for other sources.
We like to look at
ARV = After Repair Value
RC = Repair Costs
= AARV Adjusted After Repair Value
X .70 For single Family Homes
= Loan Amount
The borrower will have to come up with the money in some form our fashion to get the deal closed.
I can think of another way to get this done. Assuming you dont own a primary residence right now, you could buy this using an FHA 203K loan which will require you to come in with money, but only 3.5% of the total purchase price plus repairs. This is a purchase / remodel type loan. So using your numbers of:
Total 80K, so 3.5% down would be 2800.00 and you can negotiate that the seller pay all your closing costs. If you hurry they can still pay up to 6% of the purchase price towards your closing costs. FHA is changing soon to a max. of 3% towards your closing cost.
The ARV will just need to be 80K or better, so its an easier deal then hard money in some ways.
I hope this helps.