Does hard money make sense for this situation?

Question

Hey All,  I am a realtor and have a client who is looking to improve his property prior to selling.  He has no income because he is taking a new job out of state after he sells in 4-6 months. He currently has a 1st and 2nd mortgage that are approx 60% of his home value as it is now.  My client is looking to borrow $30-50,000 to do improvements on the home to sell immediately.  I"m told because of his lack of income he can't qualify for another loan from his band.

Im curious if a hard money lender would be the correct option to secure $30-50,000 for improvements to sell.  I believe this would be a 3rd mortgage but Ive never structured a deal like this.  Has anyone had any experience structuring a loan in this way?  Are there other options I should be considering?  Thanks in advance for the help.

Mark Safrin · Answer

I suspect that there is no way you will get a HML to take a third mortgage, or even a second lien position for that matter. Even just lending such a small amount as $30-50k (even as first lien) would be too small a loan for a majority of HMLs.

What many of my clients in such a situation do is they refi/rehab with us, paying off the other liens and using our rehab money. Of course if your client has 2 conventional mortgages that we are replacing he also needs to be able to service the higher interest rate of the new replacement Hard Money Loan.

Best wishes on this endeavor.

Tyler Bushey · Answer

You'd have better luck getting a contractor agree to getting paid at the closing than 3rd position hml

George Despotopoulos · Answer

Hey @Brad Gilboe -- that's a bit too small for hard money lenders. Also, many (or most) won't lender against owner-occupied properties. I would look into unsecured loans; there's a company called GetHearth that may be able to help here. I would check them out and see.

Greg Scott · Answer

A HML might be a good way to go, but it will be a relatively expensive loan.  The key to making those work is to get the rehab done very quickly.  If you or our client do not have the time, network, or ability to manage this sort of project, rehabbing may not be the best financial decision.

Has your client considered selling "as-is handyman special"?  Many people think you cannot sell an ugly house on the MLS, but there are many people on these forums that love to buy them.

Does hard money make sense for this situation?

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