Hey BP! Thanks in advanced for all the responses! I greatly appreciate everyone's insight and help. It is ultimately going to be a big factor whether or not i am successful or not.
I'm looking to get pre-approved for financing so i can actively start searching for my first BRRRR deal. I'm leaning towards using a hard money lender to start for i don't have enough cash to fully invest in a property, (I could cover the rehab portion if need be) and i do not have enough connections yet to start raising private capital. So i ask,
Hard Money Lenders
1. How does the pre-approval process work for hard money lenders? What do they need, what should i look into before i get pre-approved, what should i watch out for if anything, and how will this process impact ones credit score? Lets say i do not have a property i'm actively looking to buy yet, but i am looking to get pre-approved to see my budget.
Refinancing the BRRRR
1. Can you get pre-approved for the refinancing part even if you don't have a deal yet? If so, how would one go about doing this? Whether you can or can not, when should you look into completing this step of the process.
Bare with me i am new and i have a lot to learn lol. I have never been through getting a loan like this before so i have questions!
@Logan Splinter Hard money is mostly going to depend on the individual deal as that is their main concern whether the numbers make sense or not. I would find out up front what their fees are and how much they would lend. The terms will be less favorable for you being less experienced but you'll want to know what they are up front so you can factor them in when running the numbers. Your credit and personal financial position will also play a role. If you find a good deal though then you should be able to get funding for it.
I'd start talking to banks that you would use on the back end to make sure you would be good to get financing after you get it rented. The last thing you want to happen is to complete everything with a hard money loan only to find out you aren't in a good enough financial position to refi it out after. They should be able to give you a pretty good indication as to whether you will be good or not prior to you purchasing something as long as you can give them somewhat accurate numbers.
Hard Money Loans are for yiu either do not qualify for conventional loans or when conventional loans don't suit the need such as when you need fast closing times. They will be more expensive than conventional loans but are more flexible and are asset based rather than your income based.
Preapproval from a HML is generally a piece of paper saying you are approved to borrow up to $X. It is not a commitment to lend. It is basically a letter to an inexperienced seller who simply doesn't get that they need to give a borrower some time to arrange a Hard Money Loan or the occasional newbie buyer who does not feel comfortable approaching a seller without a piece of paper in his hand. Most HML borrowers do not need one at all.
The time to contact a HML is shortly before you have a property under contract or at the latest as soon as you have it under contract. You fill in a loan form, he promptly sends you a terms sheet for your consideration. You can choose to proceed to closing once you see the terms sheet.
Networking with a HML for the future is also fine.
Hope this helps.
@Benjamin Hurwitz So you can get pre-approved. I guess my ultimate question is if my strategy is planning on brrrr-ing and most likely a conventional loan is not an option until its time to Refi..... 1. Is a hard money lender a good choice to get started. and 2. Should i get pre-approved for loans before actively searching for properties or wait until i find a property that meets my initial numbers, put in an offer with an inspection and funding contingency, and take this time to try and get approved for the loan. I have always been told that getting pre-approved for any loan is a good idea. But what if your trying to get pre-approved for a loan for something you don't know the costs of yet. It would be nice to know you have approval for funding before you spend your time seeking an investment to find out you don't qualify to fund it.
Hard Money loans generally have the highest interest rates, points on closing and various fees. They also tend to have minimum loan sizes. You can get a piece of paper preapproving if that makes you or the seller feel better.
What many people do is they contact the HML before they close and say I am considering a property at address X. I will probably purchase it for Y. Its existing value is, in my totally unbiased opinion, probably Z and after have rehabbed it for AA$ it will likely be worth BB$. My credit score is CC and I have done DD rehabs/flips before. What can you do for me?
The HML is will usually be happy to briefly ention what he has to offer. The process up to this point can take 5 mins.
(Our regular, repeat flipping clients don't bother. They simply send in a loan application form knowing from previous loans what to expect. )
You can do this with more than one HML. Since the maximum loan size is a percentage of current worth (plus rehab money if any), the actual loan size that will be lent to you will generally only be known once an appraisal is done. So it's best to have extra reserves of cash in case your estimate of it's current worth and a professional appraiser's differ greatly.
You will still need a deposit for the purchase for what the loan doesn't cover and depending on the loan size perhaps $10k for closing and various other costs.
Networking in person at meetups is always a neat idea if it's possible. You get to know them in person and them you. They will often have some literature on what they offer. Personally my future goodwill can usually be assured with a glass of fine single malt... :)
As to whether there are better options than HML, that is up to you. Most people that go for HML do it either because they do not have the income or other qualifications needed by conventional lending sources or said lending sources might take months to close and you need a bridge loan for cash for that closing in a few weeks.
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