As a new investor I quickly ran up my debt to income ratio with two properties(the bank wont count my rental income for two years). Ive bee looking at hard money lenders and other ways to obtain properties. How does HML work and what are some of the pros and cons? What would be a good rate from a HML?
Hard money is best for flips. Not as much for rentals. They are high interest rate short term loans. So you would have to be able to refi pretty quick to pay back the loan for a rental property. You want to look at private money or a joint venture partner for more flips. Or try smaller mortgage companies that might be able to work with you.
Working with Banks as an investor for purchases and cashouts can be a hassle.
The next best option is an alternative financing source.
Hard money rates and terms usually 8-12% on rate with a one year loan term. This would be ideal for a fix and flip scenario.
If your looking to purchase rentals you can do bridge purchase loan at 80% LTV.
Or a 100% LTV loan with seller financing.
The other option is to cashout refi your current equity and use that for purchases.
Also, the alternative source does not look at debt to income like traditional lenders would and they offer better overall loan terms than a bank.
You may find that many of the smaller home town banks offer a rehab to a permanent loan where you borrow at a higher interest rate and then once it is renovated and tenanted converts to a hold interest rate and starts amortizing. But for this type of loan you need to have the provable income and reserves to qualify. Although I heard from Michael Leech that he has this loan at Gateway Mortgage here in KC and I swear it is 100 % based on the income of the properties, not the investor - so give him a goolgle and tell him I said to call - he is also listed on the MAREI website under Business Associates.