do they usually charge a application fee?
Do they all run a credit check?
It all depends on the lender and or company. Usually if it a large HML institution they will do all of it but if you can find an individual or smaller organization, maybe not.
Never heard of an application fee, and yes, most HML will run credit, if people don't pay their bills, then why would they pay a lender if something went wrong with the rehab.
Fortitude Investments LLC
Thanks IAN this particular company did charge and application fee but it is my understanding that hard money lenders are designed to take all your money
my understanding that hard money lenders are designed to take all your money
Sorry, but you have a serious misunderstanding. Hard money lender are "designed" to make loans and collect interest. I'm sure there are many bad actors in the hard money space, just as there are in regular mortgages. But a legitimate hard money lender is not trying to take all your money. Some may charge application fees, many don't. When you actually close a loan, you will pay several points, underwriting fees, credit report fees, maybe inspection fees to get your draws and other fees. Some may be negotiable, some not. But legitimate lenders are not trying to rip you off. They're trying to make money by making loans.
Many HMLs do require a full credit application. And they will want to see some of your cash into the deal and that you have cash in the bank to make payments on the loan and to deal with the inevitable cost overruns.
Jon Holdman, Flying Phoenix LLC
this is good information thank you. question if I have a choice between a bank and a hard money lender is one a better choice than the other
@Sinaloa Hobson Hard money lenders designed to take all of your money? Never heard that before. Hard money lenders in a lot of cases will loan money on properties a bank will not even consider financing. What kind of investing are you looking to get into?
If you can get a bank loan for your deal that's ALWAYS the better choice. Bank rates are, what, 5% or less? Hard money lenders are going to charge 12-18% and 3-6 points. They're the lender of last resort.
But have a junky house that won't qualify for a bank loan? Need money for both the purchase and rehab? That's where HMLs are useful. If you're doing buy and hold, they can still be useful, in some deals. It may be possible to buy with a HML, fix up, rent, and then refinance into a conventional loan and have less out of pocket than if you do a conventional 20% down loan right up front and paid for the rehab out of pocket.
Jon Holdman, Flying Phoenix LLC
Good breakdown @Jon Holdman
Let's get a few things clarified.
1. HMLs are not designed to take all your money. They provide financing to unique borrowers and/or properties that cannot obtain financing through traditional bank channels. In these higher risk situations, you are going to pay a premium for that money, but most individuals only need the financing for a short-term so there is a cost-benefit analysis that you would need to perform.
2. HMLs come in all shapes and sizes. Some provide very high risk loans and others provide more conservative options that are just outside the typical 'bank box'. Many properties today have been foreclosed on, gutted, etc and need major repairs. Banks will not touch these properties whereas HMLs will.
3. Many real estate investors use hard money to leverage their projects and investments.
4. Most HMLs are going to still want similar documents as a bank (i.e. tax returns, credit report, appraisal, etc.) - their guidelines are more flexible.
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