HARD MONEY LENDERS
Real Estate Broker · MI · Member since 2015 · 209 posts · 16 votes
HARD MONEY LENDERS
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Lender · Frederick/ Falls Church DC, Maryland & Virginia · Member since 2014 · 794 posts · 612 votes
10yOK Sure, for this example lets just use 12 months, 3 points @12%. The lender says they will cover 100% of the construction costs and the rest will be towards the purchase price.
So first we want to find 65% of the LTV and 80% of the LTC
- LTV (Loan to Value). ARV x .65
- LTC (Loan to Cost). (Purchase Price + Rehab Costs) x .80
LTV Loan = (200,000 x .65) = 130,000
LTC Loan = (75,000 + 55,000) x .80 = 104,000
So our loan amount in this case would be 104k because it is the lower of the two. The safest for the lender.
Using the terms above, 49,000 will be released at closing and go towards the purchase price. The remaining 55,000 will be held for the construction costs. 49,000 + 55,000 = Total loan of 104,000.
Next is what charged by the lender.
Points = Loan amount 104,000 x .03 = 3,120
Monthly Interest payments would be = Loan amount x 12% divided by 12 months
Monthly payments would = 1,040 (104,000 x .12) / 12
Next is what the borrower must bring
Down payment = 26,000 (the remaining amount for the purchase price. 49,000 from the lender + 26,000 from the borrower = 75,000 the entire purchase price.)
The points mentioned above - 3,120
Closing costs (lets estimate 3%) - 2,250
Insurance - 900
Lawyer fee's - 1000
So in this scenario the buyer would bring about 33,270 to the table.
Remember to factor in carrying costs such as utilities, taxes, agent fees, etc. Based on the numbers I would say this deal is OK as long as the rehab is finished within a reasonable amount of time. There is money to be made here. Overall you are putting up 33-40k and making roughly 25-35k.
Does this make sense?
Of course these rates and terms are different on a per deal basis but this gives you an idea of how to breakdown the loan.
32 Replies
- ., OH · Member since 2015 · 361 posts · 127 votes10y
..yes, some (maybe most??) would require you to have some "skin in the game", ie. a down payment.. also, they might charge points upfront..
The biggest complaint I've seen (on BP at least) is that HM lenders won't 'approve' the house you're wanting to buy, and it ends up costing you an 'appraisal fee' or something..
My biggest advice when looking for HM Lenders is DO YOUR HOMEWORK !! Get references & talk to people that have used the lender your talking to.. (and when you think its done, just like in school, double check it.. there are, unfortunately, people trying to screw others over..)
Hope that helps!
- Lender · Frederick/ Falls Church DC, Maryland & Virginia · Member since 2014 · 794 posts · 612 votes10y
Hard Money Lenders offer a broad range of lending packages. It sounds like you are borrowing from an individual and in that case the options are limitless in terms of what kind of borrowing agreement you all come up with.
Typically a hard money lender, or anyone lending to you for that matter, will require you to have some skin in the game. Many are doing 60-75% LTV or around 80% LTC. That being said I have seen some national lenders that are back to "90%" funding.
What you have to be careful of is the fine print and associated fee's. The 90% funding can be enticing but at what cost to you? What are the terms, points, interest rates, etc? Are there draw fee's, pre-payment penalties, additional closing fee's, etc? In most cases no matter how the loan is presented, the borrower is going to pay/bring about 20-25% to the deal.
At the end of the day you have to think that lenders are investors to and they are going to do their best to protect their money. Despite what many people think, when a lender is forced to take back a property they almost never recoup their full loan amount. The foreclosure process is a long and costly one. The good lenders leverage their risk and protect themselves on the front end by requiring the borrower to have a vested interest in the project.
In your case, if you can get the loan described above and everything checks out then great. Just be sure to run all of the numbers and read the agreement carefully.
- Lender · Frederick/ Falls Church DC, Maryland & Virginia · Member since 2014 · 794 posts · 612 votes10y
@Jay J. is correct. A lot of the "90%" funding people will ask for a non refundable EMD and then prevent the deal from closing or hold up the title work.
@Daniel Elijah Richardson If you have a particular deal in mind and want to send me the ARV, Rehab, and Purchase Price I would be happy to underwrite the deal for you and show you a hard money breakdown.
Any decent lender should have no problem walking through the numbers with you. If they push back or charge you for a simple underwriting breakdown I would proceed with caution.
- Real Estate Broker · MI · Member since 2015 · 209 posts · 16 votes10y
@Andrew Michael could we go over like an example its not real just fr education purposes. Say I have a home under contract for 75k but the home is really worth 200k and needs like 55k in repairs.
- Lender · Frederick/ Falls Church DC, Maryland & Virginia · Member since 2014 · 794 posts · 612 votes10y
OK Sure, for this example lets just use 12 months, 3 points @12%. The lender says they will cover 100% of the construction costs and the rest will be towards the purchase price.
So first we want to find 65% of the LTV and 80% of the LTC
- LTV (Loan to Value). ARV x .65
- LTC (Loan to Cost). (Purchase Price + Rehab Costs) x .80
LTV Loan = (200,000 x .65) = 130,000
LTC Loan = (75,000 + 55,000) x .80 = 104,000
So our loan amount in this case would be 104k because it is the lower of the two. The safest for the lender.
Using the terms above, 49,000 will be released at closing and go towards the purchase price. The remaining 55,000 will be held for the construction costs. 49,000 + 55,000 = Total loan of 104,000.
Next is what charged by the lender.
Points = Loan amount 104,000 x .03 = 3,120
Monthly Interest payments would be = Loan amount x 12% divided by 12 months
Monthly payments would = 1,040 (104,000 x .12) / 12
Next is what the borrower must bring
Down payment = 26,000 (the remaining amount for the purchase price. 49,000 from the lender + 26,000 from the borrower = 75,000 the entire purchase price.)
The points mentioned above - 3,120
Closing costs (lets estimate 3%) - 2,250
Insurance - 900
Lawyer fee's - 1000
So in this scenario the buyer would bring about 33,270 to the table.
Remember to factor in carrying costs such as utilities, taxes, agent fees, etc. Based on the numbers I would say this deal is OK as long as the rehab is finished within a reasonable amount of time. There is money to be made here. Overall you are putting up 33-40k and making roughly 25-35k.
Does this make sense?
Of course these rates and terms are different on a per deal basis but this gives you an idea of how to breakdown the loan.
- Real Estate Broker · MI · Member since 2015 · 209 posts · 16 votes10y
This guy is saying he is willing to give me the full purchase price plus 70 percent towards repairs depending on the deal @Andrew Michael
- Real Estate Broker · MI · Member since 2015 · 209 posts · 16 votes10y
Originally posted by @Andrew Michael:
OK Sure, for this example lets just use 12 months, 3 points @12%. The lender says they will cover 100% of the construction costs and the rest will be towards the purchase price.
So first we want to find 65% of the LTV and 80% of the LTC
- LTV (Loan to Value). ARV x .65
- LTC (Loan to Cost). (Purchase Price + Rehab Costs) x .80
LTV Loan = (200,000 x .65) = 130,000
LTC Loan = (75,000 + 55,000) x .80 = 104,000
So our loan amount in this case would be 104k because it is the lower of the two. The safest for the lender.
Using the terms above, 49,000 will be released at closing and go towards the purchase price. The remaining 55,000 will be held for the construction costs. 49,000 + 55,000 = Total loan of 104,000.
Next is what charged by the lender.
Points = Loan amount 104,000 x .03 = 3,120
Monthly Interest payments would be = Loan amount x 12% divided by 12 months
Monthly payments would = 1,040 (104,000 x .12) / 12
Next is what the borrower must bring
Down payment = 26,000 (the remaining amount for the purchase price. 49,000 from the lender + 26,000 from the borrower = 75,000 the entire purchase price.)
The points mentioned above - 3,120
Closing costs (lets estimate 3%) - 2,250
Insurance - 900
Lawyer fee's - 1000
So in this scenario the buyer would bring about 33,270 to the table.
Remember to factor in carrying costs such as utilities, taxes, agent fees, etc. Based on the numbers I would say this deal is OK as long as the rehab is finished within a reasonable amount of time. There is money to be made here. Overall you are putting up 33-40k and making roughly 25-35k.
Does this make sense?
Of course these rates and terms are different on a per deal basis but this gives you an idea of how to breakdown the loan.
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Daniel Elijah Richardson so the 64,000 dollar question is.. ONE do you have experience ? is this your first flip?
TWO is the lender local can you eye ball them and do they have a brick and motor office.
THREE did they approve you over the phone or internet and just need you to send in 200 to 500 dollars for due diligence fee.. and once they have that they will move to closing.
If the answer is its your first flip,,,,, and lender is not local just hit you on the internet or on BP somewhere,
And they want ANY kind of up front fee... other than paying for a third party appraisal and a modest credit check fee.. ( just like qualifiy for a rental)..
then chances are they are not going to close and you will lose whatever money you give them.
- Real Estate Broker · MI · Member since 2015 · 209 posts · 16 votes10y
Originally posted by @Jay Hinrichs:
@Daniel Elijah Richardson so the 64,000 dollar question is.. ONE do you have experience ? is this your first flip?
TWO is the lender local can you eye ball them and do they have a brick and motor office.
THREE did they approve you over the phone or internet and just need you to send in 200 to 500 dollars for due diligence fee.. and once they have that they will move to closing.
If the answer is its your first flip,,,,, and lender is not local just hit you on the internet or on BP somewhere,
And they want ANY kind of up front fee... other than paying for a third party appraisal and a modest credit check fee.. ( just like qualifiy for a rental)..
then chances are they are not going to close and you will lose whatever money you give them.
He doesn't want anything just a good deal. With at least 70 percent Ltv
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Well then your not conveying your questions correctly.. you SAID 100% LTV or loan to Cost and 75% of rehab funds.. in the industry that is *** backwards.. it does not work that way.
so you either have a nincompoop lender or a scammer .. one or the other.
- Investor · Roanoke, VA · Member since 2016 · 24 posts · 12 votes10y
Daniel,
Do you know anyone else who has used him? I personally much prefer using lenders that I've either met or know other people use and try to stay away from the national companies. The terms don't sound too good to be true to me, but as others have said, it's worth verifying his credentials. You can vet an HML just like you would a contractor or a realtor - ask for references of people he's worked with before and check with them. You are providing him just as much value as he's providing you.
- Real Estate Broker · MI · Member since 2015 · 209 posts · 16 votes10y
Originally posted by @Jay Hinrichs:
Well then your not conveying your questions correctly.. you SAID 100% LTV or loan to Cost and 75% of rehab funds.. in the industry that is *** backwards.. it does not work that way.
so you either have a nincompoop lender or a scammer .. one or the other.
For example let's say I find a deal, the all in cost for the home would be 30k but the house has a market value of 120k he said he is willing to give me the 30k plus 70 percent for the repairs does that make sense.
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
it could in that scenario with that big of spread.. play it out.. see if it works.. just don't give them any money up front.. if they fund then you found a good one...
I have spent 30 years loaning HM as a company with 20 employees and a 35 million dollar book.. and as stated .. that's not how HM lenders operate GENERALLY.. but then again your in MI and things are different in that neck of the world.. pretty tough to find that big of spread in most markets between what your buying it for and FMV... but its still a risk to the lender
because usually rehab is a much smaller % of the overall loan.. so to take your equity in the rehab is not the proper way to do it as a lender. you want your equity in the purchase price of the home.. so that when and if you fail.. and you were getting draws.. the lender is protected...
if the asset is only worth 30k wholesale then that's all its worth if you can't pull it off and the lender in this scenario would undoubtedly take a loss.
but again your lender just may not really know what they are doing.. plenty of those out there.. we see them post on BP all the time.. HEY I made this loan and now I am not getting paid and there is not enough money to finish and my borrower wont' talk to me... LOL... been there done that a few hundred times.... good luck with it.
- Real Estate Broker · MI · Member since 2015 · 209 posts · 16 votes10y
Originally posted by @Jay Hinrichs:
it could in that scenario with that big of spread.. play it out.. see if it works.. just don't give them any money up front.. if they fund then you found a good one...
I have spent 30 years loaning HM as a company with 20 employees and a 35 million dollar book.. and as stated .. that's not how HM lenders operate GENERALLY.. but then again your in MI and things are different in that neck of the world.. pretty tough to find that big of spread in most markets between what your buying it for and FMV... but its still a risk to the lender
because usually rehab is a much smaller % of the overall loan.. so to take your equity in the rehab is not the proper way to do it as a lender. you want your equity in the purchase price of the home.. so that when and if you fail.. and you were getting draws.. the lender is protected...
if the asset is only worth 30k wholesale then that's all its worth if you can't pull it off and the lender in this scenario would undoubtedly take a loss.
but again your lender just may not really know what they are doing.. plenty of those out there.. we see them post on BP all the time.. HEY I made this loan and now I am not getting paid and there is not enough money to finish and my borrower wont' talk to me... LOL... been there done that a few hundred times.... good luck with it.
I'm sure the numbers where wrong it was just an example.
- Real Estate Broker · MI · Member since 2015 · 209 posts · 16 votes10y
Originally posted by @Jay Hinrichs:
it could in that scenario with that big of spread.. play it out.. see if it works.. just don't give them any money up front.. if they fund then you found a good one...
I have spent 30 years loaning HM as a company with 20 employees and a 35 million dollar book.. and as stated .. that's not how HM lenders operate GENERALLY.. but then again your in MI and things are different in that neck of the world.. pretty tough to find that big of spread in most markets between what your buying it for and FMV... but its still a risk to the lender
because usually rehab is a much smaller % of the overall loan.. so to take your equity in the rehab is not the proper way to do it as a lender. you want your equity in the purchase price of the home.. so that when and if you fail.. and you were getting draws.. the lender is protected...
if the asset is only worth 30k wholesale then that's all its worth if you can't pull it off and the lender in this scenario would undoubtedly take a loss.
but again your lender just may not really know what they are doing.. plenty of those out there.. we see them post on BP all the time.. HEY I made this loan and now I am not getting paid and there is not enough money to finish and my borrower wont' talk to me... LOL... been there done that a few hundred times.... good luck with it.
Maybe he's hoping I can't pay the loan back so he could just take the house
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
loan to own is not a common thing UNLESS he makes you sign a deed In Lui and holds it in his file.. many lenders try that trick.. and many borrowers just walk away.. but its not legal to get deeds in lui at closing.. it does not give the mortgagor or trustor their right to cure.
- Investor · Benton Harbor, MI · Member since 2013 · 257 posts · 140 votes10y
Is this a HML or a Private Lender? Close, but not the same. Have they seen the deal? I have people who lend 100/100, but it's not normal criteria. If I get these terms I'm certainly cutting off a big chunk of the profits. Could be advantageous, but only if you know what you're doing. Never ideal to be that leveraged, but if the deal makes sense could be a good scenario. Best of luck!
- Real Estate Broker · MI · Member since 2015 · 209 posts · 16 votes10y
Originally posted by @Marshall Downs:
Is this a HML or a Private Lender? Close, but not the same. Have they seen the deal? I have people who lend 100/100, but it's not normal criteria. If I get these terms I'm certainly cutting off a big chunk of the profits. Could be advantageous, but only if you know what you're doing. Never ideal to be that leveraged, but if the deal makes sense could be a good scenario. Best of luck!
Hes a hard money lender.
- Real Estate Broker · MI · Member since 2015 · 209 posts · 16 votes10y
Originally posted by @Andrew Michael:
OK Sure, for this example lets just use 12 months, 3 points @12%. The lender says they will cover 100% of the construction costs and the rest will be towards the purchase price.
So first we want to find 65% of the LTV and 80% of the LTC
- LTV (Loan to Value). ARV x .65
- LTC (Loan to Cost). (Purchase Price + Rehab Costs) x .80
LTV Loan = (200,000 x .65) = 130,000
LTC Loan = (75,000 + 55,000) x .80 = 104,000
So our loan amount in this case would be 104k because it is the lower of the two. The safest for the lender.
Using the terms above, 49,000 will be released at closing and go towards the purchase price. The remaining 55,000 will be held for the construction costs. 49,000 + 55,000 = Total loan of 104,000.
Next is what charged by the lender.
Points = Loan amount 104,000 x .03 = 3,120
Monthly Interest payments would be = Loan amount x 12% divided by 12 months
Monthly payments would = 1,040 (104,000 x .12) / 12
Next is what the borrower must bring
Down payment = 26,000 (the remaining amount for the purchase price. 49,000 from the lender + 26,000 from the borrower = 75,000 the entire purchase price.)
The points mentioned above - 3,120
Closing costs (lets estimate 3%) - 2,250
Insurance - 900
Lawyer fee's - 1000
So in this scenario the buyer would bring about 33,270 to the table.
Remember to factor in carrying costs such as utilities, taxes, agent fees, etc. Based on the numbers I would say this deal is OK as long as the rehab is finished within a reasonable amount of time. There is money to be made here. Overall you are putting up 33-40k and making roughly 25-35k.
Does this make sense?
Of course these rates and terms are different on a per deal basis but this gives you an idea of how to breakdown the loan.
This was an AWESOME breakdown lol.
- Lender · Upper Chichester, PA · Member since 2016 · 143 posts · 32 votes10y
Hi Daniel,
Welcome to the BP Community. I wanted to chime in to answer your question. I am not sure exactly what the deal is he is offering you without seeing the information but, from what it sounds like to me it is not a very good deal. It is my experience that HML's lend 80%-100% of purchase price and 90%-100% of the rehab costs (put into an escrow account and paid in draws) you would need to pay for closing costs, fees, points, inspections and appraisal. If you do a joint venture then you may not have to pay much of anything at all but you will have to give up a part of your profit for them assuming all the risk. I hope that has been of some help to you. If you have anymore questions or would like to discuss you ideas or plans for investing please connect with me and lets talk more. I wish you well in your investing career.
Have a Great Day & Happy Investing!!
- Flipper/Rehabber · Springfield, MA · Member since 2016 · 641 posts · 204 votes10yGreat info
- Realtor · Denver, CO · Member since 2013 · 2k+ posts · 1k+ votes9y
@Ginny West Be careful about offering money online. I bet you'll be solicited now. I've done a few deals this year as a borrower with TNS loans here in town. I pay them points, then I pay one of their lenders the rate. I now have a few clients that I borrow directly from, which saves me the points.
@Travis Sperr is here on the forum and works for Pine. You might reach out to him as well.
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