Closing Cost for Hard Money Loan

4 Replies

Hello BP 

My name is David I am a new investor and currently in the market looking for my second deal. First deal was a two family house hack using FHA. This deal we are looking for a distressed property and plan to use hard money for purchase and rehab. I know lenders usually want 10% of purchase price but does that include the closing cost or is it separate? We prefer small multi-family and use BRRRR strategy but we will do a fix and flip if the numbers make sense. Does it matter to hard money lenders if we buy/hold or fix/flip? Or do they just care about 65% ARV to fund the deal?

@David H.    Closing costs would generally be separate from the downpayment, and most lenders I've spoken to require 20% down.  In addition, you generally have to "front" the rehab costs and get reimbursed per a draw schedule.  Finally they want you to have reserves so you can finish the project in case it goes over budget.

The last deal I purchased for $50k and did $25k rehab, and I needed $10k down, $10k to start rehab, and $10k in reserves.

Depends on the lender, but that's been my experience.  

Regarding buy/hold, most HML is short term only. You'd have to refinance if you're planning to hold it.

Originally posted by @David H. :

Hello BP 

My name is David I am a new investor and currently in the market looking for my second deal. First deal was a two family house hack using FHA. This deal we are looking for a distressed property and plan to use hard money for purchase and rehab. I know lenders usually want 10% of purchase price but does that include the closing cost or is it separate? We prefer small multi-family and use BRRRR strategy but we will do a fix and flip if the numbers make sense. Does it matter to hard money lenders if we buy/hold or fix/flip? Or do they just care about 65% ARV to fund the deal?

Hard money lenders want a solid exit strategy.  If it's to flip, that's fine, just make sure your numbers work.  If it's to fix and the subsequently hold, not only do your numbers have to work, but you should have a pre-approval from a reputable portfolio lender that will pull you out of the hard money once the property is stabilized.