I'm working on a checklist for approvals for FHA loans and Private Money Loans. I think I have researched enough on FHA. What would you say are things I need to make sure of for successfully obtaining private money lender's help?
For what type of property?
If you are able to borrow through FHA, why are you looking at private money or hard money? FHA interest rates are in the 3%-4% range and hard money is usually around 12%. FHA only lends money to owner-occupants and hard money only lends on rental properties - I'm not sure why you are researching these two options??
First off, Private money is different from hard money- Hard Money is pretty much only for rehabs, the interest is cost prohibitive for long term holds.
Second, a lot of "hard money" lenders aren't true collateral lenders so I dont really consider them Hard Money. As recent as a year ago, the best money in Atlanta was 4 pts and 13%, 65% LTV, 20% participation and then they wanted a 640 credit score and two years taxes to qualify...huh? Thats pretty ridiculous terms with those rates, in case you dont know.
Hard Money SHOULD be true collateral lending. The property gets you the loan, you dont need to qualify. That's the reason you give up the high money costs. Doesn't always work out that way, but that's the concept.
If you are talking Private Money, anything goes. Its whatever you and the lender come up with. Half the deal. 12%, 4%, 30%. whatever. I pay my main private lender 2 pts and 12%. I've got $100k+ from my dad right now at 0% and no paperwork, but we move real money back and forth a lot based on what we've got going on (he does rehabs too). There is no "private money" kiosk in the mall, you have to cultivate that stuff. Find someone with money and convince them to lend it to you. I started at over 20% APR on my first deal, then as we got more experienced and had more people wanting to loan us money and less places to put it, we went down to 12%, then 10% and no points. That was before the crash. Money dried up some, plus I like my lender to be happy so I just pay him the 2&12 now. At the end of the day its way more about the availability of money than the cost of money for rehabs. Long term holds are a different story. Saying that, I have never, ever had a private lender ask me for a credit report. They do go on reputation, though, so if you are driving a $1,500 dented car, owe money to everybody you know, and ask someone to loan you $300k to do a house deal, you probably wont get a yes...
@Rita Bautista I'm looking to buy a multi family 2-4 as wel as a single family house around there same time.
@Darren Eady I would like to purchase the MF with an FHA loan and use private money lenders to purchase the SFH. With everything that I've been viewing, I think I'll find both around the same time. As a first time investor thing both close together may not be the best idea, but I'm just working through my thoughts and trying to prepare a plan. Along the way some things may get crossed off of the list using all of the resources BP has to offer.
@Darrell Shepherd Thanks for the breakdown. I will be able to squeeze my parents (hopefully). I've been telling them all that I've learned so far in just one month on here. Those rates are pretty over the top for hard money lenders. I am just trying to work on creative financing to use while I stay in the MFH for a year. My credit is pretty good and my only dept right now is on a student loan which is fairly small now. I plan on getting on the game after a few more months of saving and learning. I see so much potential, I just do not have the foundation (knowledge and contacts from networking) that I want to have yet. One month down!
Thank you all for the comments. Sorry for the delay. I posted before the Rockets game started. #RED NATION!! Lolz
If you take the traditional financing out for these two properties:
FHA for multifamily
HML refinance into conventional
It makes most sense to buy the multifamily first for several reasons:
1. It's less risky going this route
2. You most likely won't have to put as much money down (HML can but is rarely 100% no money down)
3. You can potentially live rent free with multifamily
4. Debt to income ratio may not allow you to buy both properties in the same time period so you better pick one
Consider an FHA 203k loan for a multifamily that needs to be fixed up. You can roll repair cost into a the loan at the low rate instead of having to use a HML. This will also give you practice repairing a property so you can feel more confident fixing a house with a HML next time around.
@Amber Koontz I'm just curious, are you buying in Houston? If so, what areas are you going to look at?
@Mark Parzych I like the aspect of house hacking and gaining experience in a rehab. The plan has always been to start with a duplex, but somewhere along the way after coming across "great" properties I thought to include it. The equity gained after that year will be very useful.
@Joe Fairless I'm looking all over utilizing Zillow, realtor, and Har.com. (Apps) I haven't really had any alerts come for an area I'm not comfortable in. If you are interested in more detail on the hotspots @Fred Heller is a great contact.
Amber Koontz, I am a private lender here in Houston TX, Loans I offer are secured by collateral. I can do rehab loans or cash out refi on rental or owner finance property. Message me if you would like to discuss some of your projects and potential partnerships in more detail.
@Robert Orthwein Thank you! I will be reaching out soon.
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