I have been reading different lender’s FAQs and guidelines. This has come up on the two that I have read.
Repair escrow releases (draws) will require the submission by email of digital pictures showing both before & after repairs, plus additional evidence of completed repairs may be required such as receipts, invoices, contracts etc.
[i]Requesting A Rehab Draw
You may request a draw after completing a portion of the rehabilitation of your property. Typically our borrowers request from one to three draws per project. You simply need to contact our office and request the date of inspection. Brookview will then schedule an appraiser to inspect the work that has been completed. We typically wire rehab funds to your account within a week of receiving your draw request.[/i]
Is this typical? Excuse me if I sound dumb here, but I am new…I would have to do repair work (out of pocket?) then send them pics and then they would release funds?? I don’t get it. Help! I thought that they would say Yeah, here ya go. Have at it! And then I would pay them off at the sale of the rehabbed property.
Someone please set me straight! lol We are looking at houses tomorrow! :-\
From what I have been finding that is almost the rule now. I have looked at many hard money lenders and I don’t recall talking to any who will give you all of the money up front. You don’t neccesarily have to use the money out of pocket up front, just let your contractors know that it could take up to a month to get paid, based on one draw a month for three months. Don’t under estimate your repairs either! You will be typically charged an inspection fee as well.
hmmmmmm, so I can use my own money, do the work, then request a draw?
Or promise a contractor he will get paid after I send in the pics and get my draw?
I wanted to do as much work as possible myself.
What should I do…use a credit card for the time being??
HML’s do not advance funds before inspecting that the work has been performed. Why? because we are making loans based on the vale of the property AFTER the repairs are made. If we advanced you the rehab funds you could take the money, goto the bahamas and buy a new plasma TV and al we have for collateral is a house worth less than what we have advanced. Not a good idea for us HMLs.
A couple of ideas:
1.) Get the GC to agree to be paid by the HML. I work with saveral GCs that are HAPPY to do ths because they know they will be paid directly by the bank, me. (typicall smaller GCs will not do this as they need your deposit to get started
2.) Use your CC or other funds to pay the GCs only what then need to buy materials. Or better yet buy it for them. This ensures they are using the money you give them on YOUR job
I agree with DHLC but be carefull not go over 50% of the lending limit on your credit cards this can adversly affect your credit rating.
When you are searching for a HML find out what areas they work in, typically they like to stay close to home so they can monitor the projects that have invested in. It has been very difficult finding the HML’s in ND. Make the sure you are talking to the lender himself not a broker wannabe. You can tell I am not real fold of brokers.
Another piece of advice I would like to give is make sure you have your preapproval before you purchase the property! There are several lenders that will lend but they won’t refinance.
Realtor called, I have to leave the house. I will be back soon.
As a HML I work with many investor/contractor/rehabber borrowers. There is always a story of buying a property at pennies on the dollar spending a little cash to fix and then rent or sell it to make huge profits. But the golden rule still applies. He with the gold makes the rules. So you need to find someone you can work with. I would suggest working with TWO HML’s in your area, that are willing to meet, and have their own money. Many broker deals and have to add points to make money. Having two investor/lenders (HML’s) keeps them both honest and fair about rates and terms. Check their references. And remember all points are negotiable! Call as many as you can, and find out: 1. What LTV do you lend to? 2. What are the starting points and rates for the most conservative hard money loans you fund? 3. What are your typical closing costs? 4. How long does it take you to draw docs and fund?
Granting that they fund the type of loan in the location you need then the answers you get to these questions should help you pick two or three to deal with. You may have to make a number of calls, but it will be worth it!
They will try and avoid answering your questions, and it is true the answers will vary according to the percieved risk. But if they are serious they should be able to give you some ball park figures. Many are out there to charge you as much as possible, and some are charging a “fair” cost for thier services. Like funding a million dollar loan in a week with no docs or fico. You may hear anywhere from 4-14 points and a rate of 8-21%. So it pays to do your homework.
On rehab work. If you are doing the work yourself, have it all itemized, with a cost breakdown, and get a quote from a contractor, to show how you are saving money. It is real easy to release funds as the work gets done to either you or a contractor. But you usually have to pay interest on the entire loan amount so make sure you are ready to do the work and get it done.
I hope this helps. Good luck!