Hard Money Loan Question

[Hai Doan]

I just went to a website to apply for pre approval and they require 15% of the loan amount in the account, is that the norm now?  Back in the day it didn't require this but it has been several years so I figure I would ask.

Also, do you all have recommendations for how to use for hard money lenders?

[Jack Tulloch]

10% - 15% is pretty standard. The lender wants you to have some skin in the game.

[Hai Doan]

Quote from @Hai Doan:

I just went to a website to apply for pre approval and they require 15% of the loan amount in the account, is that the norm now?  Back in the day it didn't require this but it has been several years so I figure I would ask.

Also, do you all have recommendations for how to use for hard money lenders?

 Oops I meant do you have any recommendations for "who" to use for hard money lenders.

[Nicole Heasley Beitenman]

How many lenders did you look at?

[Hai Doan]

Quote from @Nicole Heasley Beitenman:

How many lenders did you look at?

 It was one this morning but they had an asterisk saying it was a new requirement and I assumed it was from the gov.  I'm in the process of filling more out this morning.

[Michael Kinsella]

A few notes...

- Generally speaking, hard money lenders will want to see that you have 1/3rd of the requested loan amount liquid. This is not a hard and fast rule, but just a general guideline. Hard money loans are typically used for a short duration on non-cash flowing properties. If an interest reserve is not built into the loan, then the payments will need to come from somewhere. Again, liquidity requirements vary, but for a hard money loan, the borrower's liquidity is typically an important underwriting consideration from the lender's perspective.

- It seems to me that hard money lending requirements have become more stringent in recent years. However, hard money lenders do seem to vary in which underwriting guidelines they have flexibility on.

- Probably the best use of a hard money lender is for some short-term capital need, such as the purchase and renovation of a property, given the generally expensive interest rates and points commonly associated with them. Also, for borrowers who do not qualify with traditional capital sources, or need fast execution on a deal, hard money lenders can be useful capital sources.

[Ramandeep Sidhu]

It is not uncommon for hard money lenders to require a down payment or equity injection in order to secure a loan. The exact amount can vary depending on the lender and the specifics of the loan. In general, hard money loans are more expensive than traditional mortgages, and lenders may require a larger down payment in order to offset the higher risk associated with these loans.

As for recommendations for using hard money lenders, here are a few things to consider:

1. Shop around: As with any financial product, it's important to compare offers from multiple lenders in order to find the best deal. Make sure to ask about the lender's terms, fees, and repayment requirements.
2. Understand the terms of the loan: Make sure you fully understand the terms of the loan, including the interest rate, repayment schedule, and any fees or penalties that may be assessed.
3. Be prepared to provide collateral: Hard money loans are typically secured by the property being financed. Make sure you have a clear understanding of what assets the lender may require as collateral, and be prepared to provide them if necessary.
4. Have a clear exit strategy: Before taking out a hard money loan, make sure you have a plan in place for how you will eventually pay it off. This could involve refinancing the property, selling it, or finding another source of funding.

I hope these tips are helpful as you consider using a hard money lender!

[Jonathan Taylor]

Hai, HML lenders that I work with, unless you have a solid proven track record with the lender, will not lend 100% on deals in this market. Every lender requires down payments ranging from 10-20% on Fix and Flip deals. If you are looking for 100%, friends and family are the best option.

As stated, who would lend on a project where the borrower has no risk involved? It's too risky and no lender who has their wits about them, would lend on something like that. 

In terms of upper hand as @Zeke Rosenblatt stated, we are always in a tug of war with who has the money and who needs the money. Its a partnership with the lenders instead of an upper hand mentality. 

[Travis Anderson]

I was able to do less up front.  I will DM you to give you a little more info. 

[Hai Doan]

Quote from @Jonathan Taylor:

Hai, HML lenders that I work with, unless you have a solid proven track record with the lender, will not lend 100% on deals in this market. Every lender requires down payments ranging from 10-20% on Fix and Flip deals. If you are looking for 100%, friends and family are the best option.

As stated, who would lend on a project where the borrower has no risk involved? It's too risky and no lender who has their wits about them, would lend on something like that. 

In terms of upper hand as @Zeke Rosenblatt stated, we are always in a tug of war with who has the money and who needs the money. Its a partnership with the lenders instead of an upper hand mentality. 

I'm not saying I don't want to put anything down but just don't remember there being a hard number.  Perhaps I interpreted the qualification verbiage wrong but it sounded like it was a new requirement by some kind of law and it just meant new requirement by that specific lender.

[Hai Doan]

Quote from @Travis Anderson:

I was able to do less up front.  I will DM you to give you a little more info. 

 Thanks Travis! 

[Bud Gaffney]

@Hai Doan yes this is the typical %

[Jonathan Taylor]

@Hai Doan each deal is unique and we have boiler plate quotes but some require more down, others require less and its dependent on the numbers of the property (purchase price, reno amount, ARV, etc). In this market, being conservative is the best approach.

[Nathan Harden]

My biggest advice would be to shop around. Lending is not a one size fits all and different situations require different types of lending.

[Olivia Grabka]

@Hai Doan liquidity requirements have become standard over the past 5 years. We hold at least $50,000 in a separate fix & flip account in addition to our other cash.

[Hai Doan]

Quote from @Olivia Grabka:

@Hai Doan liquidity requirements have become standard over the past 5 years. We hold at least $50,000 in a separate fix & flip account in addition to our other cash.

I think I get it. Back in the day when I used hard money loans the goal was to come out of pocket as least as possible and usually only closing costs. I believe the wording is incorrect or I misinterpreted it. The lender wants to see all the money in the account but not actually use it or else the HML makes no sense and becomes just another regular loan.

[Mike Klarman]

So, in this atmosphere banks want to see liquidity.  No point in going through the process if you do not have the funds to close.

You can get 90% funded if credit is good and have some experience.

[Albert Bui]

Quote from @Hai Doan:

I just went to a website to apply for pre approval and they require 15% of the loan amount in the account, is that the norm now?  Back in the day it didn't require this but it has been several years so I figure I would ask.

Also, do you all have recommendations for how to use for hard money lenders?

 HI Hai,

15% Down or 85% LTC (loan to cost) is pretty normal these days.

With experience, evidenced by exits on other flips/hard money loans/refinances from BRRR's of 5-6+ in the last 3 years you could get more favorable terms like higher LTC's (aka less down payment or high leverage).

Prior to June 2022 when rates shot up to the moon it wasn’t unusual to see the best programs go to 90-95% LTC for the best qualified folks even on fix/flip money in the 6-7’s with pts. With prospects of the market ever evolving, lenders have lowered their LTC’s to 90 and then 85% for the best qualified folks.

Some newer fix/flip's are only getting 75-80% LTC because there is more inherent risk with newer people who have never done a full gut rehab or renovation so terms can vary based on your experience, liquidity/cash availability, and the project can be case by case (ARV prospects - After repair value).

Hope that helps.

@Matthew Kwan

@Carlos Valencia

[Eliott Elias]

Get with a mortgage broker who has multiple products. Happy to connect you with one.