Orlando, FL · Member since 2020 · 11 posts · 0 votes
So I have been watching a couple YouTube videos on hard money loans and how they work but I was wondering is it common or even possible to get a loan for 100% LTV and a credit line to pay for the repairs on a fix and flip? And if so what hard money loan companies do these types and where would I find a hard money loan like this?
@Noah Taylor I personally wouldn't trust anyone that says they have a product like that, it's one of those too good to be true things from what I see. Each time I have used HM I have had to bring money to the table to close.
The only conceivable circumstance where a HM lender might be enticed to make a loan on those terms is if what is presented is a golden "loan to own" opportunity. In other words, the property is so rich in equity/value that the lender is willing to bet you will fail and thus lose the property to lender through foreclosure.
Happy 2021 and I agree that if it sounds to good to be true it usually is. If you has a prior rapport with the HM lender then it may seem more realistic. HM loans require some funds brought to the desk. If you get that opportunity in your pocket, good job and good luck king!
So there are 100% financing programs available from HMLs however most either require you to have a great track record or that the property all in be at 665% of less of the ARV and if that is the case they do require you do have a nice reserves account set up for interest only payments and possible unforeseen repairs as they will not give additional rehab funding. They will also typically require more paperwork and it will be a longer approval process as they will be underwriting the property more in depth as it would be a higher risk to them. So although it is possible it is not very common.
Also be on the lookout for lenders that say they can do it and then ask for an upfront fee of some sorts as that is how they scam people.
@Noah Taylor this question comes up a lot. There are actually HMLs that do offer 100% financing. However as mentioned above, they require this amount (purchase + rehab) to be less than 65% ARV. You will also pay higher fees for this high of leverage. Most HML start around 8-9% and these will likely start around 10-12% plus 3-4 points. So you pay for it, if you can find it. I would have to imagine that there are stricter UW and performance clauses as well though.
My suggestion is to always put your own skin in the game. The vast majority of lenders will require this and you will get much better pricing.
If you need to raise capital and this is your first deal than I'd suggest partnering with an experienced investor. You find the deal and manage but they'll help with the down payment and holding costs. Once you have your name on some deals you'll get much better pricing AND have your own money to put down. This is done with a JV agreement and or having them join your LLC or entity. Most lenders do not allow 2nd position loans.
@Noah Taylor that stands for Joint Venture agreement. It is an investment agreement between two or more parties that spells out the capital invested and requirements/responsibilities of all parties during the term of the investment/project. This is an outside of escrow agreement, it's not recorded anywhere necessarily. However a lot of people want to also attach their investment to title in a 2nd position lien. After COVID, most lenders stopped allowing this.
@Michael Glist there are any hard money lenders out there that can do 75% of ARV and 100% of cost to somebody with 0 experience, with super easy underwriting criteria and no up front fees.