Typical HML terms and risks

 I have a friend who is a contractor.  He found a rehab deal that he strongly believes that he cannot pass up.  The loan that he will take will still only leave him in debt about 50-60% of ARV.
 His mid fico is somewhere in the 500s, so he is going to a HML and is supposed to close tomorrow.  His ultimate plan is to refinance, rent and hold.
 He has asked me to come with him to make sure that these people are honest.  I've closed a few conventional loans for my own investments, but I've never used a HML.
 The terms are something like this: they give him the money to close the property, then they feed him more money at intervals giving him enough money to perform each phase of construction.  They're giving him 6 months to complete the rehab.
 What are the typical terms of a HML?  What risks will he need to watch for?  Is there any typical scam that small time HMLs pull to cheat people out of their properties?

The Terms sound pretty typical. The loan fees, interest and renewable fees (if he needs to go longer than 6 months) are what you need to be aware of. I haven’t hear of too many scams. After all they are putting up the money. The main thing is just understand all the fees involved.

 Thank you

Just in case you haven’t asked, I’d want to read the mortgage or trust deed and all riders as well as the note, prior to closing.


I actually had a similar question that can be inserted here instead of a new thread.

If you use a HML and refi 6 months later with a mid 500 score.

Is this even possible considering the low credit score to refi with a sub prime lender and since using a HML money would the title be in his name or the HML or both and they must sign off the deed once payment is made.

How does that work?

Hey Funder,

1 thing you might want to consider…try to get approved for the pre-apporved for the refi before you get into that HML. I recently tried to refi out of a HML and am catching hell trying to get it done :banghead. I was done with repairs in about 8 weeks but could not find a lender to approve a no seasoning refinance before 6 months. With the sub-prime BS going on, i can only imagine how hard it will be for someone with a 500 credit score, even after six months.

Just somethin you might want to consider before you’re stuck paying those sky high interest rates every month.