It has been awhile since I’ve posted but I wanted to see what you the investors are seeing out in the market place. In Dallas/ Ft. Worth, we are still seeing strong deals and even stronger borrowers (No doubt as a result of the banks pulling back from making loans in this market.) I have been hearing rumors that Hard Money is getting harder to find. While the days of easy money (70% LTARV with zero “skin in the game”) may be behind us HMLs are still making loans on solid deals to solid borrowers. I am hearing the same thing from some of my contemporaries.
Which brings me to the purpose of this post. Who is still lending hard money out there? What are their current rates and terms? What is their current due diligence process? Who is no longer in business? Most of us have heard about the unfortunate FDIC take over of Omni National Bank. I am guessing they are no longer doing HM Loans.
Yes, things are tighter and true, underwriting is more strict but good deals are still getting funded. There are still several direct HMLs in D/FW making loans. Who is lending in your city? It is still possible to get good deals funded with Hard Money. If you have a good deal you need funded give your favorite HML a call.
While I am not a heavy investor (yet), I can tell you that when I started looking at HML’s approximately a year and a half ago, the advantages to using them were plain…
Purchases were equity, not credit driven
Interest rates were higher than conventional, but it was offset by the fact that closing were earlier within a week.
Points averaged a little more than convential.
Out of those above points alone, which are the most important IMO, I’ve found that they are basically doing the same thing as conventional, but charging much more. The quick close has totally lost it’s importance, as conventional loans can now close within two weeks and in some cases less. I’ll wait an extra week to save literally thousands of dollars. Besides, from what I’ve seen, the banks dealing with foreclosures and REO’s don’t put alot of emphasis on the “fast close” aspect anymore. On top of that, in addition to requiring more “skin in the game”, they are charging more for both interest and points, than they were before without “skin in the game”, all while base interest rates have dropped. Probably why RookieNYC is getting into the game…
While the current property I bought was with cash, if I were look for a loan to buy a property with, I would go with an FHA loan for the HUD properties… Credit requirements are lower, down payment much lower, interest rates lower, even with MI, the closing costs are lower…
IMHO, it become too hard to work with HML’s… why should we use them if the only apparent advantage is a quicker close but at quite a cost? I’m open, but I will probably be a hard sell…
“underwriting is more strict but good deals are still getting funded…” Yes, this is true.
One philosophy I believe is crucial to REI is that: its not the cost of the money, its the availability. Traditional banks are scared stupid of NOO loans right now, I’m taking that quote almost verbatim from several local loan officers I’ve talked to.
In SE WI, where I live and invest in, as of the first of the year we were pretty much down to one local bank still doing rehab loans. My company was working on a deal that we started in November 2008 and fell apart in January of 2009. I went back to my LO in February for the next deal and he said they had just discontinued their rehab loan program “to see how our porfolio of rehab loans will perform.” So from January to February we basically lost our last local bank doing rehab loans. Just great. That bank currently requires 20% DP on NOO and all rehab money must be shown in escrow beforehand if its a rehab property.
Now we’ve turned to a national HML, Brookview Financial. Yes they charge up from fees and several points at closing, but the fact of the matter is, where else are we going to get acquision money from, outside of completely private money. Goes back to my original point of availability of capital vs cost of capital. For investors who’ve been around awhile they can tap into their current properties to buy new ones, but for those of us relatively new, our options are limited.
The other thing I’ve seen going on is HML trickling down to a much smaller scale in the form of investors financing their own deals to other investors because if buyers cant buy, sellers cant sell. We’re set to close on a house on the 1st of May from another investors who’s financing us the rehab money and purchase cost for 0% down, 5pts for 3 months. I think this trend of smalltime HML is going to continue to grow and flourish if the credit markets remain seized up and banks continue to throw the baby out with the bathwater, so to speak.
I recently learned that there’s a convention in Las Vegas happening very soon that was marketed to brokers who wanted to become HML’s. Obviously they are being trained by HML’s. Something tells me the list of HML’s is going to grow very very soon.
I too am looking into Brookview and a few others. Personally, my mentor has told me one thing that has stuck with me: Use other people’s money and that is how you grow rich. The cost of using an HML can be high but if you don’t have your own funds to make the purchase and the rehab (but have some funds or awesome credit and debt/income ratio) then HML’s are the way to go. Plus, if you’re deal is good enough (meets or beats the 70% rule) then you’re golden no matter how you obtain your funds.
Also, private investor money is awesome since you can arrange the terms. Of course finding it can require some expensive marketing.
I got the OPM concept… but the way I am looking at this, is that the HML’s are basically looking for the same criteria as conventional, but at a MUCH higher cost across the board. I’m reading HML’s asking for 20-30% “skin in the game”.
Using the FHA programs, financing one of their HUD’s, you can put much less down, credit criteria in the 570 range, it can be NOO, and interest rates much lower.
If the HML’s are asking for MORE from you than conventional, at a much higher cost, the advantage of using an HML goes away… HML and Conventional are both OPM… HML’s just cost more for the same result.
Here’s the catch-if you’re in the rehabbing game, which I am, HMLs will finance the acquisition AND rehab costs. Most conventional lenders are NOT in the business of lending the rehab portion of your costs. They may require you to have proof of rehab funds in an escrow account, PLUS a substantial DP, PLUS they may want proof of 6 months reserves, or some combination thereof.
I’ve also found that working with HMLs can be much more fluid, as they are willing to work with your particular situation (yes you still need some available capital and a strong LTV on the property) and bend their lending criteria in order to meet your needs, because they understand the difference between the “letter” of the law vs the “spirit” of the law.
The ony time that I still use banks is when I am refinancing out of HM.
You make some good points but you are incorrect on others. There are no more 570 score FHA approvals. the minimum score is now a 620 across the board even on streamlines. As for the FHA NOO yes that is possible but only after the house has failed to sell to an owner occupant, and many many times these houses are trashed on the inside so they will need tons of repair work; in addition to the fact that you are limited in your selection because there are only so many of these HUD houses that will allow you to qualify being a NOO. By utilizing an HML you might be paying a more in fees but typically the equity in the property can be used to pay for the fees as well as the repairs where going with the HUD FHA loan EVERYTHING has to come out of your pocket ie…down payment, closing costs, repairs, escrows, etc…
And the cost of conventional vs. HML are not that different anymore. If your scores are less than a 680 you are paying points FOR SURE. The difference between conventional costs and HML costs have dropped dramatically due to Loan Level Pricing Adjustments. So my question is why jump through the hoops for conventional or FHA financing when your total out of pocket costs may only differ by 2-3% across the board for closing and the HML will cover repair costs where FHA and conventional will not?
I am always open to learnig something new… Christopher, is it not the case that HML’s are looking for 20-30% down as “skin in the game”? Depending on the lender, that can be 1/3 to 1/2 less than that with conventional. So either way, you are still coming out of pocket with either route, it just costs more with HML’s. And HML interest rates are double than that of conventional, with higher monthly payments upfront, eating more into reserves.
In addition, I’ve only seen HML points in the 2-3 range once you’ve done a few deals with them… they are usually looking for 4-6 points upfront, and that’s with a 680 score. HML minimum credit scores are 640-660.
HML’s have always wanted “skin in the game” however most if not all of the time they will use the equity in the property to satisfy the equity requirement. And as I said before if your scores are not top notch you are looking at paying significant points on a conventional loan as well; however you are correct the rate is MUCH lower. I am refinancing my investor clients in the mid-5% range instead of the 12-15% range of an HML.
The biggest factor are the rehab costs. If a property needs SIGNIFICANT repairs then you would have to use your own funds to make the repairs and then do a cash-out in the future to get your money back which just adds another layer of fees to your costs.
I still believe that using an HML for purchase and repair and then refinancing to conventional is the way to go unless you have plenty of spare cash laying around that you need to find a use for.
My students and I are having tremendous success with local banks. They are still lending money for purchase and repair money. Credit Unions are still in the game, at least up here in NE WI. Local banks up here usually give you the repair money at closing (no escrow) so you can get to work asap with your contractors.
I’m a huge huge fan of local banks and CU. When one stops or folds up shop we move on to the one down the street who is still lending. Most now want 20% down just to get in the door. This is a very small hurdle to clear. You can use a credit card advance, IRA, your own money, family members, JV with someone for a take of the profits, etc. etc. Some of my students are putting the 20% down and then getting that back AND the repair money at closing since they have a great LTV ratio.
Trust me folks. Local banks are lending and they won’t stop. They have to lend no matter what anyone tells you.
When I was looking for a hard money lender recently , I noticed the same thing. It looked like it would cost me more than conventional upfront, plus a very high interest rate. Sure you can refinance , but that’s an extra cost right there as well. So I didn’t really see the advantage…
I guess it depends if you find a HML that is willing to repair on ARV as well…rather than just ‘as is’ value.
Gordo, I’m wondering how your students are putting 20% down and getting the money back at closing?
Nate-I’m in SE WI (Milwaukee area) and the banks down here are NOT lending rehab money anymore (at least that I know of). What banks are you working with that will lend the rehab money at closing? You and I are obviously not far apart (geographically speaking) and I’m just curious who you’re getting to fund your rehab deals. I feel like I’m banging my head against the wall looking for financing right now-steer me straight please!