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Private Lending & Conventional Mortgage Advice

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Kristopher Lamy
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Hard money lenders for rental property

Kristopher Lamy
Posted Jun 26 2019, 06:02

So i have found a couple rental properties (price high $50k to low $90k) that I’m interested in, in Baltimore City. And i was advise to reach out to a hard money lender for financing. But before i do i wanted to know what questions should i ask and what favorable terms should i try to get?

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Michele Wax
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  • Chicago
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Michele Wax
  • Specialist
  • Chicago
Replied Jun 26 2019, 07:11

I would say that you should ask every question that has you worried or concerned about the hard money loan.  

As for what terms they will vary....5 to 12% interest, a balloon in 1,3,5,7,15 years, points on the loan. 

Why are you thinking hard money?

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George Despotopoulos
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  • New York, NY
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George Despotopoulos
Lender
  • Lender
  • New York, NY
Replied Jun 26 2019, 08:08

@Kristopher Lamy why were you advised to reach out to HML? Why not a non-bank lender that offers a long-term loan from the outset? Some may have a minimum loan amount of $50k (although that is rare and most have a minimum of $75 or $100k).

Some things hard money lenders will want to know:

  • property type
  • purchase price
  • does the property need rehab 
  • if it needs rehab, what is the expected ARV
  • your experience (have you done a flip before, a rehab and hold, or held a turnkey rental?)
  • your credit score
  • how much you have in liquid reserves to put down and for reserves 

Questions to ask a lender:

  • upfront fees?
  • origination fee and other closing costs 
  • LTC/LTV/ARV limits
  • amount of time to close
  • what valuation product do they require 
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Kristopher Lamy
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Kristopher Lamy
Replied Jun 26 2019, 08:20

@Michele Wax well i was told that when trying to purchase on an investment property quickly that hard money lender are what most investors use. So i figured i would use a HML to acquire the property and then convert it to a conventional loan soon after

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Michele Wax
  • Specialist
  • Chicago
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Michele Wax
  • Specialist
  • Chicago
Replied Jun 26 2019, 08:35

Using hard money is usually for flips/rehabs and those type of money making endeavors. You do not have to use hard money.  You can use conventional lending and get a Letter of Intent from a bank before you make an offer.  But, in all honesty I don't think you need to do that.

Here is my suggestion, 

1. Get all paperwork that a bank/financial institution might need.

2. Find a realtor to work with that you can trust.

3. Find a deal that will cash flow and make sense of you overall financial plans.

4. Make an offer for it. If you are scared about the financing going to slow you can have it written that you get x amount of days in your offer to secure financing. 

Financing does not come through in a day or two for anyone. If you have good credit, a good DTI, then you loan should go through. You will need to have closing costs and the down-payment in cash and have that in your bank account prior to making an offer. Most times it is best if the money has been there for 6 months.

If you have any further questions you can ask here and I will try to answer.

Hard money is not the way you should go if you are going to hold the property.  

You can also go for a line of credit, use credit cards, for down payments. 

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Caleb Jordan
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  • Arlington, TX
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Caleb Jordan
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  • Arlington, TX
Replied Jun 26 2019, 12:57
Originally posted by @Kristopher Lamy:

So i have found a couple rental properties (price high $50k to low $90k) that I’m interested in, in Baltimore City. And i was advise to reach out to a hard money lender for financing. But before i do i wanted to know what questions should i ask and what favorable terms should i try to get?

 If these properties are in pretty decent condition and a 30 day close is not an issue then conventional lending is what you should look at. Assuming you don't have any issues qualifying for a loan.

There are hard money loans designed for buy and hold properties. Lots of options in that space, from 24 to 48 month io loans to longer term amortized loans. These can make sense in the right situation. if you need to close fast, run into DTI problems, or seasoning of funds issues then hard money can make sense.

If your plan is to rehab then rent out hard money starts to make more sense for purchase and rehab then you refi out.  But there are conventional and commercial loans that can help fund purchase and rehab as well.