100% financing Program

[Cara Lonsdale]

I just received this new marketing piece that is being distributed for a new loan program.  I thought it would be something that the BP community may find useful as it directly relates to rehabbers.

Has anyone else come across a program like this that will do 100% financing for a rehab project including the rehab expenses?  I thought this was incredible, and I wanted to see if anyone else had experience using a program like this.  I would love to get any feedback from that experience.

100% Rehab Financing that includes Closing Costs!

Fico: 680+ NO EXCEPTIONS! Lender also looks at borrowers debt to income ratio. Loan Terms: 9 months interest only loan, will extend for 4 months for 1 point, sometimes no penalty at all to extend. Loan Size: $60K to $750k, lender can go higher on a case-to-case basis. No min purchase price. Rehab can be more than purchase price. Max LTC/ARV: Lender will fund 100% of the purchase, repairs, and soft costs (lender fee, broker fee and title insurance) on the deal as long as the loan amount does not exceed 70-75% of the After Repair Value of the property, which will be determined by an appraisal. Property/Hazard insurance is not included in the soft costs. ARV is determined on borrower's profile, where property is located & profit on the deal. Interest Rate: Typically 10.5%. Property Types: Only 1-4 unit investment properties! This includes Single Family Homes, 2-units, 3-units, 4-units, condos and town homes. Pre-Payment Penalty: None at all! Use of Funds: Purchase & Rehab, Refinance & Rehab. (In a situation where a borrower purchased a property with cash recently and is looking for rehab financing, Lender can finance the rehab and reimburse them a portion (sometimes all) of their cash that they used to purchase it. This only applies to a recent, cash purchase.) Asset verification: The borrower must have 10% of loan amount, in liquid cash, on hand in order to qualify for this program. Typically that is around $12,000 for most projects. IRA/401k funds will not count. Lender will ask for bank statements to prove this.Cross Collateralization: To qualify for this program and receive 100% financing lender will put a lien against the borrowers primary home. They can take a 2nd or 3rd position lien. If no lien against primary then the lender will not finance the deal 100% and borrower will have to come with down money and closing costs. Points: 5 lender points. Broker can charge up to 2 points. Lending Territory: CO, KS, MO, TX, IN, IL, OH, TN, FL, NY, NJ, VA, MD, PA, NC, & SC. Lender likes to lend in major metro areas in these states. Closing Time Frame: Typically 2-3 weeks.Experience: Prefer borrower to have experience but lender does consider first time rehabbers. Draws: Draws are dispersed to the borrower in $5,000.00 increments, unless otherwise approved, based on inspection progress. Each draw will require an inspection. Inspection fee is rolled into total loan amount. Docs: Tax returns, bank statements, pay stubs, lenders app, schedule of real estate owned, rehab budget. Appraisals: Lender will ask for realtor comps going into the deal; then they do order a full appraisal. Special/Extra: This lender does not do ground up construction! Lender has a $450 doc fee that is also rolled into loan. Borrower will pay interest on the loan amount at that time/what they draw down on. Does not lend to foreign nationals. If an entity has multiple members in it they all need to have 680+ credit, they all need to personally guarantee the loan, but only one lien against one member's personal home has to happen. Lender typically likes borrowers to do one loan at a time with them, but if they have the cash reserves sometimes multiple loans at one time can happen.

[Derek Dombeck]

As a hard money lender, we have offered 100% purchase and renovation to our buyers for years at far better terms than these. I may ask someone to personally guarantee a loan, but for them to ask for a position against the personal home really gets greedy. 

As far as hard money vs. lower rate conventional loans goes, I tell people all the time, if you are aggressive and are looking for a short term loan to flip a property in under 6 months, I firmly believe it's foolish to tie up your personal credit to save a few thousand dollars. I see people that go into 50/50 partnerships to get cash for purchases and they give up far more than if they paid the 12% and 3 points that we charge and kept the deal for themselves. 

But, If you are planning on a longer hold and/or you have less experience, you should consider conventional lenders. The lower rates can hedge against unexpected problems that newer investors may not account for.

I will say that many of the posts I read are reminding me of 2006. People are getting lines of credit against their homes and risking personal credit to throw it down on a bet that Real Estate keeps going up. Meanwhile many buyers are over paying for "deals". I've lived through that story line once and felt the pain of having my entire portfolio controlled by banks. And when they decide to pull your line of credit or stop lending, your business crashes......... learn from the past.

Happy Investing

Derek Dombeck