Hard money lending question.

[Michael Randle]

Hello BP, I want to run a scenario by everyone too see if I grasping the fundamentals of Hard Money Lending. My understanding is that HML can be ~70% LTV and can be used for improvements and repairs. Let's say I find a house for 10k. It needs 60k of work due to fire damage. Neighborhood dictates market value of 100k for comparable houses. If I bring the numbers and written quotes from qualified GC to a HML could I get a loan for 70k based on after repair market value of the house and the neighborhood? I kind of want to stay away from the question of rehabilitation of a fire damaged home and want to focus on the theory of my idea and if it would work in the real world. Thanks!

[Tatiana Gershanovich]

I'm so far to see a HML who will lend without a downpayment. So, even thought your purchase price + rehab fit 70% LTV, your HML will want you to bring 10-20% down of acquisition price, at least. Also, some HML don't roll their points into the loan, so you will have to pay points out of pocket as well. If they do roll points into the loan, that 70% LTV will include that points, so your actual loan will be less.

Also, HML might not agree with your ARV and base their loan on the ARV they are comfortable with.

And also, they will base their loan decision on your experience. If you have never done any flips before, be prepared to HML wanting more downpayment or cross collatarisation, especially when we are talking about a complicated rehab such as fire damage.