Bank loan vs. private money loan

[Matt Sora]

If I'm looking to find a multi family home and fix it up what loans are best for me? I know I want to do either a FHA or conventional loan but don't know if the bank would be willing to lend on a fixer upper house. Private money lender? Just want to know the best options and smartest route.

[Nick Belsky]

@Matt Sora

Fix and Flip private loans are a dime a dozen.  Many many lenders do them.  Banks and Credit Unions will sometimes as well.  

Conventional and FHA rehab loans do exist, but they are the biggest pain to work with. Contractors have to be approved and the guides are strict. You cannot do the work yourself, if that's what you are looking to do. Private lenders are more flexible as are the terms and approvals for the loans and draws.

With private money, expect a short term loan with a higher interest rate and interest only payments.  Nearly every lender does the "first dollar in" approach meaning the borrower has to pay for the rehab with their cash, get the work and receipts approved, then get reimbursed the cash.  Only once the draw is completed does that amount go on the loan.  The purchase is usually covered up to a certain percentage, but the initial rehab work is not up front.

These loans are done and calculated with LTC (loan to cost) values in addition to ARV (after repair (or rehab) value). To qualify, you have to fall into the ratios and have a scope of work to submit to be reviewed and approved by the lender. The process can actually happen quite quickly in as little as 15 days, sometime less if you are experienced with that lender. Many will require that you have some experience flipping before they will lend to you, but find a mortgage broker who works with Fix and Flip lenders, they will most likely have a few that will work with first time flippers.

Cheers!