If ficos and income are not the issue, what do they look at in a borrower?

I'm looking into taking this route in hopes I can get a loan. My situation, My middle score is about 610. My business income(RE commissions, etc) is low but my rental and flip income drives my total income significantly high. But most lenders I've gone to don't consider my flip and rental income when trying to obtain a conventional loan. I have 4 properties that are paid for, 1 with a mortgage that pays for itself.

I have about 150k tied up in flips and another 40k or so in my bank account. I'm hoping to get some sort of loan(50k-75k will suffice) so I can have enough to repair all three properties at the same. So my questions are.

1. Do I fit the ideal borrower for a hard money loan?

2. What property does the HML use as collateral, is it one of the flip properties I want to use the money on, one that I already own, or my primary residence?

3. How long does it take to close a loan?

4. Does the hard money loan show up on your credit, and does it have any negative impact?

I sent out an email inquiry to two lenders in the San Diego area. Hopefully I get some communication going by Monday. 

Hey Manuel. I am brand new and haven't done any flips yet, but I have been talking to various hard money lenders to get as much financing as I can squared away up front.  About 1/3 of the lenders I have talked to were able to pre-qualify me based off my personal finances.I don't have much capital, but pretty decent credit score, so I was able to get pre-quals and proofs of funding that route.  The other 2/3 of the lenders told me that they only lend based on the deal itself, and asked me to apply once I have a property under contract.  I know that doesn't answer all your questions, but I hope it helps a little.

Qualifications for Hard Money Lenders:

1. Be able to fog a mirror without resuscitation.  

2. Have a picture ID, (driver's license)

3. Be able to write your name as it appears on your picture identification

4. Have a ton of cash to put down, 40,45,50, 60%+ on a decent property.

Miss a payment and you can lose your home.

Might take 3 days, as soon as they get a title clearance usually and get a closing set up.

Yes, larger lenders can report, small hip pocket guys usually don't report, heck they aren't even licensed in many cases so they sure won't be reporting late payments.

If the do report, yes it can effect your credit, good or bad.

Never get a mortgage or any loan and then leave that loan off of an application for another loan, that is mortgage fraud, just a reminder. ;)

Originally posted by @Bill Gulley:

Qualifications for Hard Money Lenders:

1. Be able to fog a mirror without resuscitation.  

2. Have a picture ID, (driver's license)

3. Be able to write your name as it appears on your picture identification

4. Have a ton of cash to put down, 40,45,50, 60%+ on a decent property.

Miss a payment and you can lose your home.

Might take 3 days, as soon as they get a title clearance usually and get a closing set up.

Yes, larger lenders can report, small hip pocket guys usually don't report, heck they aren't even licensed in many cases so they sure won't be reporting late payments.

If the do report, yes it can effect your credit, good or bad.

Never get a mortgage or any loan and then leave that loan off of an application for another loan, that is mortgage fraud, just a reminder. ;)

 What does a hard money loan payment typically look like? Interesting that they can take your property with one missed payment.

Some hard money lenders will want to know something about you in advance, @Manuel Sarabia , and some will wait until you have a deal. The key though is to have a deal. That's the basis for a hard money loan; not your personal finances, credit score, past payment history, good looks, etc.

With several flips under your belt already, Manuel, you have the experience that would appeal to many HML's. You'll normally have to have enough cash in the bank to show you can complete your project as well, but with as much cash that's floating around the industry lately, 100% financing is often available after you've built a few relationships, have the requisite experience, and of course, a viable deal.

The collateral will be the home you borrow against -- typically the flip itself. Funding depends upon the lender and can range from a few days to weeks. These are non-institutional loans and will not normally appear on your credit score. Many HML's will only loan to an entity but will expect your personal guarantee. Payments are typically interest only over a six to 12 month term. All of this depends on the lender, and since these are not conventional loans, within the bounds of the law, private lenders are free to create their own terms.

You might attend a few real estate clubs. This is where many HML's hang out. If you don't mind a drive to San Diego, here's a long list. I'm told the SDCIA club is among the best in southern California.

I know he's being cynical, and believes that all HML's have broken noses and use a baseball bat for collection, but the first three qualifications Bill listed above were those used by much of our conventional banking system in through mid-2000's. This all but took the world banking system down. Thank goodness the majority of HML's are more savvy, careful, and professional.

HML's have no more recourse to your properties than any other financial institution, and want your home less than anyone. No one forecloses from one missed payment. How silly.

Good luck, Manuel.

You would be a pretty good candidate. Most HMLs look primarily at the quality of the deal first and foremost, your experience/track record, and liquidity. As a general rule about 20% of the loan amount in cash. This is to complete the rehab and contingency if the deal goes south. Your other free and clear properties should definitely help as the HML could use those as additional collateral.

Originally posted by @Jeff S:

. No one forecloses from one missed payment. How silly.

Jeff, I agree with all you said, good post except this part. Totally wrong and it'd done everyday by individual hard money lenders, those posing as privet money guys.

Read the security agreement, generally a payment over 30 days constitutes default and the lender has every right to accelerate the loan to maturity, demand all amounts outstanding payable. If full payment is not made as demanded foreclosure begins. Usually small borrowers, if they are hard up, didn't have the payment, they won't be paying the whole thing, nor will they be in a position to hire an attorney to go a the judicial route.

I have had or ended up with some bad borrowers, I always try to work things out, but sometimes things won't work, I never lowered the boom due to one late payment just from fairness, but I could have. I have taken borrowers to foreclosure based on the "last" late payment and every time I won. So, yes, you can lose a property from a late payment, it's almost always based on the last payment that was missed, how many over 30 day payments were missed prior are irrelevant, the action is brought based on one payment.

I'll also add, do your due diligence, there is absolutely no association or membership in any organization that can assure you that you aren't dealing with some bad apple, these organizations are generally a good think, HMLs are trying to clean up the industry, but the threshold of joining is usually paying a fee, just as with the BBB, just don't rely on any membership. They will have the sales pitch to go with membership on how ethical they are, etc., but those organizations can't police a lender in every step or everything they say. Look at it this way, there are many sidewinder bankers, just a crooked in their dealings and the FDIC regulates them, much can go unchecked, so you need to do your due diligence, check with other borrowers, look at how many foreclosures they have done, se what their lending activity is before you judge a foreclosure rate, ask others in RE, check the integrity of the person and the company.

Yes, after they know you, you might get 100%, prove yourself, but at that point you're getting past the initial qualification most look for, a nice down payment, as that is the only protection they have in recovering the money if you fail.

Last point, always read and understand every word of the note and security agreement, word for word as that is what governs the deal, nothing that is said will modify or change that arrangement, know before you borrow as they say. :)