Hard Money exactly how does it work??

6 Replies

Depends. Depends. Depends. Everything depends on the lender. Most don't require downpayment if the Loan To Value is low enough. Most will give you money for rehab if the LTV is low enough. Some will check your credit, and some won't care about your credit if the LTV is low enough.

So do you recommend a hard money loan to a first timer, with just average credit?? and really no money to put down?? I haven't located a property yet, right now just researching financing options.

Let me answer you this way...

Suppose you find a house that you can buy for $300,000. You intend to put another $300,000 in upgrades and rehabbing, and the appraisal comes in (for the finished product) at $2.5 million. The loan would be for $600,000 or $700,000, somewhere in that neighborhood (remember, commissions, taxes, interest, licenses and fees, etc).

So do the math. Loan for $1 million, value of $2.5 million. LTV less than 50%. A lender will not care what your credit is...but will care what your skill level doing rehabs is. If this is your first rehab they will want credit checks.

But for those who have been in the business and do 5 or 6 flips a year, Hard Money is easy to come by and does not require working capital.

Does this make sense?

A great thing about hard money lenders is that they have the most flexibility when it comes to interest and points. My advice to you would be to start using one or two of them, get to know them, and then start working on point and interest rate reductions.