New to RE Investing- Funding

2 Replies

2) Funding... To be honest, this one is EXTREMELY confusing for me- I don't know what all of my options are (the whole "you don't know what you don't know" thing) and I don't know the steps to take to get funding, including when I should be getting it (ie: getting funds before I place an offer or after).

a) Hard Money Lenders- Do we get pre-approved for a max loan amount they will offer us prior to finding a house and placing an offer? Or do we need to find a house first, then get approval for the funds?

a.1) Do I understand this loan type correctly- typically hard money loans are used for fix/flip properties or double closes, correct? And typically we need to come to the table with some $ of our own, correct? What if we don't have 10% of the cost of the home to put down? Does this mean we can't move forward with this type of transaction until we do? And in this case, we'd have to complete a few assignments to save up some $ to put down on this type of transaction

b) Traditional loans- used for buy & hold properties only correct? and same question as above- what if we don't have 10% or 20% of the cost to put down? Any creative financing ideas to cover this?

Thanks,

Beth

Q. a) Hard Money Lenders- Do we get pre-approved for a max loan amount they will offer us prior to finding a house and placing an offer? Or do we need to find a house first, then get approval for the funds?

    - Usually Hard Money Lenders will want you to have a property under contract or close to it. Of course it is worthwhile knowing what a HML loan criteria is so that you can look for a property well within their lending comfort zone. A HML can usually tell you their minimum loan sizes, and what % of purchase/LTV/ARV plus rehab they can lend you on which type of property. 

Q. a.1) Do I understand this loan type correctly- typically hard money loans are used for fix/flip properties or double closes, correct? 

- Yes. (There are also long term HMLs for refinancing and purchase/hold options).

Q. And typically we need to come to the table with some $ of our own, correct? 

- Yes you having skin in the game is what most HMLs want to see.

Q. What if we don't have 10% of the cost of the home to put down? Does this mean we can't move forward with this type of transaction until we do? 

- 10%? Usually this is if the LTV is much higher than purchase, otherwise it can be more like like 25% down. And what about loan costs? If the HML is not charging very approximately$7K in total loan costs if not more, that's a red flag.

- If you have a motivated seller or a kind relative or anyone willing to fund the loan for a second position, then some HMLs can accommodate a second position. 

- There are also numerous threads, guides and webinars here on BP with subjects along the lines of "No Money Down" and "Using other people's money".

Q. And in this case, we'd have to complete a few assignments to save up some $ to put down on this type of transaction.

- I'm just a down-to-earth loan originator. I leave the creative "Make lots of money with no skin in the game" to some of the (self proclaimed?) gurus around here. However....

- I deal with lots of investors/loan applicants every day. I also deal with our borrowers and keep track of many of them even if its just when they contact me for their next Rehab draw. I can tell you that it is always wise to have extra money over and above what you think you will need. Money for the down-payment, for the loan closing costs, for carrying the loan until your exit strategy, for the first milestone of Rehab and most of all for contingencies... For when your rehab costs more than expected, for when your GC doesn't do right by you, for when your exit strategy - be it sell or rent takes longer than expected or is less lucrative than expected. I have seen some people coming into this game with few reserves and regretting it. Save up some money.