@Josue Rivera Glad to hear you're already taking action on your investing goals! Talk about being an early bird to setting those 2018 goals ;) I just responded to a request for more info into the hard money process, and I thought this would serve you well going into your next deal.
When evaluating hard money, you should focus on 5 aspects. Keep in mind the costs are much different if you decide to fix and flip, or buy and hold - so knowing this exit strategy ahead of a conversation with a lender will make life easier for both parties.
Here's what you should ask:
1) Are you a Broker or Direct Lender, and what’s your estimated loan volume this year?
- A broker is someone who brings your financing request to a direct lender, then adds their fees on top of what the direct lender charges. A broker may have more available resources for funding programs, but it may cost more, take a bit longer to process, and depending on how many lenders view your file, could hit your credit more times than you’d prefer. Direct lenders are straight to the source, which may result in lower fees, will speed up the processing time to close, and preserve your credit score with simply 1 source pulling that information. Knowing how much volume someone does on a regular basis will let you know how much capital they have on hand to lend. The last thing you want are great terms and no money available when you land that next project.
2) What are your rates, and how are they calculated?
- Usually hard money will offer between 7-12% with lower rates offered to those with more experience, better credit, and more capital contributed to the deal.
3) What are your LTV's, (loan to value) and do you lend based % on resale value or purchase price?
- Most lenders will lend between 65-75% of the resale value, and may offer a variation such as 80-90% of purchase price including or excluding rehab costs up to 100%. Each lender is different, so this is an important question to ask.
4) What are the origination costs, and other "junk" fees?
- You can expect between 1-5% as an origination fee - also known as points. Other fees may include appraisal, processing, application, etc - so it's good to know these details up front before you decide on a lender based on interest rate alone.
5) What do I need to qualify?
- Lenders may require a business entity in order to secure lending, some may not. All lenders will want to verify proof of down payment, closings costs, and a variation of monthly interest reserve (3-6 months). Some may require a minimum credit requirement and even US citizenship.
Hopefully this gives you more insight into securing your next lender!
@Eric Loya Thank you so much for this information, very useful information I truly appreciate it. Lots to think about. I see you live in California is that were you invest in ?
@Josue Rivera Of course! Feel free to reach out my way with any other questions.
Currently, yes, I invest in California primarily but lend in a few different states across the US. I've also taken on investment projects in Dallas Texas and Savannah Georgia with partners in the past.
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