Hard Money: Finding the best terms
Hi everyone!
I currently own two rental properties, and a business that has an SBA loan that put liens on both of those properties. I am thinking of getting a hard money loan in order to pay off the SBA Business Loan in order to release the liens on both of my rental properties that have equity with them.
That would allow me to use that equity to purchase even more rental properties. My safety net is I have more than enough equity to pay off the hard money loan, so I know I would be able to repay.
I found a lender that will do 8.99% with three points but requires them to run my credit, do an appraisal, and is through a broker. I read on the BiggerPockets forum that if you go through a broker the fees will go up. I have a couple of questions and hopefully you all can help me. Thank you in advance for your time and advice.
1. I know that BiggerPockets has a list of Hard money lenders, but are there any in particular that you have worked with and or reputable?
2. Is it normal for a hard money lender to run a hard credit check?
3. Since they run the credit check, will a hard money loan affect debt to income ratio?
4. Is there a way to go directly to Hard money lenders and not use the broker in order to avoid additional fees?
5. Is it normal for a hard money lender to do a walk-through of the property and charge for that?
If you have any other tips or advice on how to find a qualified Hardmoney lender without the middleman but the lowest fees please let me know. Thank you again.
First and foremost those SBA Loans can be pretty hard to get out of especially when multiple properties are tied into them. Brokers can make loans more expensive but not always most lenders offer brokers special programs that allow them to keep the points on the loan reasonable (The rate and terms you were offered seems more than fair and of course your broker should get paid for their services. The Credit Check and appraisal is going to be standard no matter where you go and of course there should be a fee for the appraisal
I work for a hard money lender and I will answer your questions based on the guidelines/policies at my company, every company is different however.
1. I know that BiggerPockets has a list of Hard money lenders, but are there any in particular that you have worked with and or reputable? - I can't answer this question because if I recommend specific lenders it will be considered advertising and the answer will get bounced.
2. Is it normal for a hard money lender to run a hard credit check? - Yes, we do a soft pull when you apply for a loan and a hard pull right before the loan is funded. We use the credit score to determine interest rates and if you have a history of repaying debts among other things. Most companies I work with both as a borrower and a lender require a credit check and have minimum credit score requirements.
3. Since they run the credit check, will a hard money loan affect debt to income ratio? - Not necessarily, that depends upon whether or not the loan is reported to the credit bureau. A hard money loan is a commercial debt not a consumer debt so if the debt is obtained by an llc it is usually not reported.
4. Is there a way to go directly to Hard money lenders and not use the broker in order to avoid additional fees? - Absolutely, the advantage of using a mortgage broker rather than going directly to a hard money lender is that they typically have access to more loan programs than you will see and they will do the leg work to see if you qualify. If you want to do the work yourself you can go directly to a hard money lender.
5. Is it normal for a hard money lender to do a walk-through of the property and charge for that? - On a cash out refi, an appraisal both inside and out is normally required. On a fix and flip loan, there is a review of the construction budget and a construction inspector can be hired by the lender to verify the as is condition of the property and the likelihood that the budget proposed is enough to get the property into the condition required to achieve the as repaired value. Some companies charge for that review others don't.
I hope this helps.
Hi @Aimee Tarte you have some great questions and I will also answer to the best of my ability and experience. Full disclosure I am a private lender as well.
1. I would search forums or PM people to get who the recommend. There are also some adverts of lenders in the MarketPlace
2. Every HML will have their own guidelines. I pull to check background, FICO, previous foreclosure/BKs. We will only make a hard pull every 12 months. Again this is based on every lenders own set of guidelines
3. We look at reserves for cash to close not really a "ATR" rule
4. I would have an AMC (appraisal management company) complete a valuation for me. This would be the value we use to leverage the property.
5. You can absolutely go directly to a lender; however, if you signed a broker fee agreement you are usually stuck paying it regardless of who does the work.
Feel free to reach out to me for further questions, but your best luck is just calling around to other lenders and finding one that best suits you. I am a firm believer that people do business with people they like and trust which is why I always suggest a call.
@Aimee Tarte What's the purpose of using a HML in the first place? HML is short term money, so you'll then have to refi that loan in 6-12 months. Why not just skip the HML and use conventional financing to start? The conventional loan would pay off existing liens, same as a standard refi.
@Tom S. Hi! Thanks for your response. I am doing hard money since I cannot refinance yet because I just got put on the title for the only property that doesn't have liens from my business loan. I can only do a hard money loan since I cannot refinance yet. As soon as one year goes by and I can refinance I will and then immediately pay off the hard money loan.
@Aimee Tarte I would just wait the year then. The HML will probably cost you 3 points up front, closing costs, and 1% interest per month for a year, Then in a year you have to refi and pay another set of closing costs. Very expensive unless you absolutely need the money right now.
Lenders are now changing their programs to allow cash out and even long term debt pending the debt service coverage ratio (DSCR) of the property.
@Aimee Tarte
Why can’t you look for a loan product that would allow you to refi immediately?
Am I missing something?
I got a quote for a refi with no seasoning period for 5.75%, which is a bit high, but if the numbers work, it could be good!?
@Eli Gilbert I did not understand either. Everyone told me I have to wait 6 months to one year after being put on title. Is that untrue?
@Tom S. Thanks, I may just wait then like you suggested. I want to make moves and purchase more properties, but not at the cost of thousands of dollars in fees. Thank you again!
@Aimee Tarte, no two lenders are exactly the same. Some conventional lenders don't have a seasoning requirement and allow the refi immediately. You will need to shop around to find them.
As a hard money lender, I would caution you against it unless you need it need it right now. We're not all the same. Most have lots of hidden fees and won't extend if you need it. When the loan is due, it's due or they foreclose. Losing the property because you can't refi is a brutal way to lose the property (I know you don't think that will happen, but what if the market changes between now and the 1 year you thought you needed to wait).
If you can find a good conventional lender, you should. You won't regret it.
@Jeff Cichocki You provides really great feedback and made amazing points. Thank you for taking the time to help!
@Aimee Tarte
As others have stated, there are lenders that do not require a seasoning period
@Aimee Tarte
Go call or sit down with 12 different small banks/credit unions tell them what you need only talk to small banks. Someone will help you, they want your debt and you can play them against eachother. Think of them like car salesmen not like you're asking them for a loan. They will compete for you !