It is safe to say that real estate is hot once again. Unfortunately this new hot market is only available to professional real estate investors and very savvy borrowers.   Foreclosures have become the latest and greatest in most market places. Deals on homes can be as low as fifty cents on the dollar, but most come with some form of time restraint and quick decisions need to be made.

There are number of ways to finance your fix and flip, short term hold or long term rental, and when it comes to purchasing a foreclosure it is good to know your options.

If you are buying a foreclosure that needs minimum repairs there are only really two good options, self finance or hard money. Generally the trustee sale or auction wants their money quick. Because of this conventional financing becomes nearly impossible. Depending on where you buy, there is usually just a few days to deliver a check for the full amount on your foreclosure. This is where hard money or private money is best utilized. It can be difficult to find these lenders, but if you work with the right Realtor they should be able to give you a couple of names. And please call at least two different hard money lenders to compare COST, interest rate and terms.

If you have a foreclosure that need major repairs there are a number of options to look at. If you can determined the scale of repairs most hard money lenders will lend you the money to include the cost of the repairs. Depending on the situation, one may be able to use conventional financing and cash out on the property to make the property more attractive for a renter or long term hold. Generally refinancing any foreclosure out of hard money should mean that you intend to hold the property 6-12 months or more. The cost of refinancing can out way the benefits, so pay close attentions to the closing cost.

Get in Foreclosure Shape:

1. Know how your local foreclosure process works.
2. Know the Realtors, wholesalers and hard money lender that work with foreclosures every day.
3. Line up Financing – both hard money and conventional.
4. Try to buy a foreclosure in an area you know.
5. Know the rental market ahead of time, prepare for worst case.

Do not be afraid to invest in real estate during one of the lowest price points of the last 10 years. There are a number of deals out there, but time is not on your side when you’re buying foreclosures.

Troy Schuricht

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Tags: buying foreclosure, Financing Real Estate, foreclosure, hard money, hard money lender, hard money loan, HML, real estate investing, real estate investor, rehab

Why use a Construction Loan?

Building your dream home or rehabbing your investment properties, though exciting, may present many challenges. Although you may be familiar with the traditional mortgage process, a construction loan includes additional elements of risk. In a typical construction project, the contractor will request funds when work is completed. Many times a homeowner will build their dream home without the use of financial institution funds. There are various ways to pay your contractor, many people feel they should pay cash, use a home equity line of credit from another property or cash out an investment.

This presents unique challenges for the homeowner. The homeowner must manage the additional responsibility of ensuring all subcontractors and suppliers are paid in a timely fashion. The homeowner must also understand the statutory documentation requirements in their state. If the draw process is not properly managed and the contractor does not pay the subcontractors and suppliers, the homeowner may be subject to mechanics liens. To mitigate your risk throughout the fund control process, consider the benefits of a construction loan and the process. The construction process is a complicated one and the construction draw process will ensure all subcontractors and suppliers are paid so that you don’t have to pay the bill twice.

A construction loan is a check and balance of the funds that are dispersed throughout the build of a new home. With the help of the lender(s), inspectors and draw processing staff your funds are reasonable protected.

Understanding the Costs Involved
As you begin the process of building a new home, you’ll want to understand the costs associated with your construction and permanent loans. You’ll also need to know when the expenses occur so that you can prepare an accurate budget.

• You can begin construction with as little as a 10% down payment or 10% equity in the total cost to acquire your lot and build your new home. If you don’t own your lot, the first draw of your construction loan may be used to pay off your lot. There are instances that a borrower will not be required to have any money down.
• The interest rate on your construction loan is typically tied to the Prime Rate. You will be billed monthly for interest only, and your payments will be based on the current balance of it at the current interest rate for the previous 30 days. Borrowers can build in an interest reserve account to pay the interest payment during construction.
• When you finish building your new home, we will modify your construction loan to a permanent loan of your choice. Various options for locking in your rate are available depending on the product selected.

Total Project Costs
This is the cost to complete the home and consists of soft costs, hard costs, land value, closing costs, contingency and interest reserves.

• Soft costs: Permit fees, engineering fees, architectural fees and other costs associated with building the home but not directly a part of the actual construction costs. Many times the borrower has already paid some of these costs. To consider these paid items as “equity,” the borrower must document the cost with a bill and a canceled check or a paid receipt.
• Hard costs: The actual cost of construction covering all materials and labor associated with the building of the home. Typically the borrower will enter into a contract with a contractor to build the property. Like a purchase contract for an existing home, this contract will set forth the work to be done and the costs associated with that work. All contracts must be for a fixed price; “Cost Plus” contracts are not acceptable. To support this cost, we require a signed and dated copy of the contract along with a detailed Line Item Cost Breakdown prepared by the contractor. All contracts and budgets must be reviewed by, and contain terms acceptable, to standard lending guidelines.
• Closing Costs: Costs associated with the closing of the loan (e.g., title costs, loan fees, discount fees, inspection fees, appraisals, etc.)
• Contingency: In certain circumstances a reserve account will be needed to cover unforeseen cost overruns in the construction of the home. A required 5% of the hard costs will be established in the Contingency Account (Contractors may hold a reserve other than what usually required by the Lender.)
• Interest Reserve: At loan closing, an account is established to pay the estimated interest costs during the construction of the home. Since the borrower is only charged interest on the amount of funds disbursed, an estimate of the average disbursed amount is made. Our construction specialists will estimate that, on average, 60% of the loan amount will be disbursed during the term of the construction period. This interest reserve account is paid up front and is held to pay the interest during the time of construction.

Tags: construction loan, Flipping Houses, hard money, HML, loan, mortgage, real estate, real estate investing, rehab loan

1. What is the process for Hard Money Loans?
   Hard Money Loans provide Investors access to capital to purchase investment properties. They can fund quickly, typically within 72 hours of receiving the final docs from the Title Company. Hard Money is available for adequately collateralized loans on single-family residential houses and other Real Property including commercial projects.

2. What is the interest rate?
   The interest rate depends upon the Lender. The rate will range from 10% interest only to 18% interest only annual interest rate payable monthly in most cases. Some Lenders will defer interest payments to payoff, benefiting investors that do not want payments during rehab.

3. What Loan-to-Value are Hard Money Lenders looking for?
   Typically a loan does not exceed 70% of the after-repaired-value (ARV). This figure is calculated by an appraiser and consideration of repairs.

4. How long is the loan for?
   Typically write the notes from 3 months to 12 months depending on the Lender and your needs. Longer the term can lead to increased costs or interest rate.

5. What are the costs?
   All loans will require Title Policy, Insurance, and Appraisal. These services come with fees that can range from a few hundred to a couple of thousand dollars. Most require origination points ranging from 2 to 10 points.

6. Can I get money pay for repairs?
   Yes. Most Lenders require a “Draw Request” form to be filled out to identify the completed repairs to the property, copies of the invoices from the contractors or sub contractors. After work is inspected, draws can be dispersed. Typically work is not paid in advanced.

7. Does my credit matter?
   Maybe. Hard Money Lender do check credit, not necessary for credit scores, but to check for bankruptcies, foreclosures, charge offs and collections. They look for ability to repay. The loan is more collateral based, which means they look really closely at the property.

8. Do I need to put any money down?
   In most cases, Yes. Most lenders want to ensure that you have enough resources to finish the repairs and cover the costs of the loan plus any surprises. Expect to pay all origination/discount points and other costs at or before closing. If you cannot afford to close you typically cannot afford to take out this type of loan.

9. Can interest to be deferred to the end of the loan?
   Sometimes. Most have interest payable monthly. Again, if you cannot afford to close you typically cannot afford to take out this type of loan.

10. How does Hard Money compare to a traditional non-owner occupied investor loan?
    This would be like comparing apples to oranges. Hard Money has a very specific purpose. Typically these loans are for quick turn around or after repair situations. Conventional financing is used for your traditional rentals and long term hold scenarios. As the foreclosure market increase you will find investors to use Hard Money as way to secure the property in a short period of time then refinance into Conventional finance.

Tags: After Repair Value, ARV, community first financial, Conventional financing for investors, Hard Money Loans, HML, Investor Loans, troy schuricht