Investing with Hard Money Lenders
Member since 2018 · 3 posts · 1 vote
My husband and i want to invest with little to no money down. We are looking into Hard Money Lenders and would love to hear the good,the bad? Any experiences and/or advice anyone could give us would be appreciated. Thanks you all so much!!!
@Raquel Sayago If you don't have a prior relationship with a hard money lender, you may not be able to get no money down. You should be able to get by with little down if you have a good deal though, they just want you to have some skin in the game. Typically HMLs will fund up to ~75% LTV with an annual interest rate of 8-10% and charge 2-4 points along with fees. They are much faster to get and can usually close within 7 days unlike traditional loans.
HMLs are typically good if you want to rehab a property or only need the cash for a short amount of time. You only need to make interest payments until your loan term is up which is usually 12 months. As long as you include the interest when you are calculating your deal and don't underestimate the amount of time it takes to rehab a property, then a HML can be a good option.
If you plan on buying a rental, then HMLs wouldn't be a good option since the loan term is too short. If you are planning on rehabbing the property first then renting it out, a HML could be a good option as long as you refi to a traditional loan once you rent it out.
Talk to @Nghi Le. He has talked to literally hundreds of lenders across the country and can give you the low down of the good, bad, etc.
@Raquel Sayago If you don't have a prior relationship with a hard money lender, you may not be able to get no money down. You should be able to get by with little down if you have a good deal though, they just want you to have some skin in the game. Typically HMLs will fund up to ~75% LTV with an annual interest rate of 8-10% and charge 2-4 points along with fees. They are much faster to get and can usually close within 7 days unlike traditional loans.
HMLs are typically good if you want to rehab a property or only need the cash for a short amount of time. You only need to make interest payments until your loan term is up which is usually 12 months. As long as you include the interest when you are calculating your deal and don't underestimate the amount of time it takes to rehab a property, then a HML can be a good option.
If you plan on buying a rental, then HMLs wouldn't be a good option since the loan term is too short. If you are planning on rehabbing the property first then renting it out, a HML could be a good option as long as you refi to a traditional loan once you rent it out.
@Raquel Sayago I agree with everything @Matthew G. stated. I work with an HML in north Texas and we will lend 100% of purchase and rehab costs up to 75% of the ARV (meaning that if the ARV is $100k, we would be able to lend $75k and if your purchase and rehab price are $75k or less you will be 100% financed). Even with that, you will have money to put down. I have not met an HML that will roll origination fees, points, or purchase closing fees into the loan. You will also need money to make the monthly interest only payments. And the rehab is almost always out of pocket but you can make draws on the loan you have to pay yourself back once the work is complete. Even with a 100% loan, you will need to have roughly 10% of the amount borrowed in cash to close and make your payments.
If you have any other questions about HMLs, post them here an tag me in them. I would be happy to answer them for you.
Best way to buy a property with no money down is going to be using the subject to existing financing method where you take possession of the home from a desperate homeowner and just start making payments. They sign title over to you but the loan is in their name and the lien is still on the property. You need to find a title/escrow/law firm that will utilize line 203 and 503 on the HUD-1 document. Not all will.
@Ruth Bayang Thank you so much for the info, i will be contacting him to gain a little more knowledge! I just read his Bio and you're right he's def. talked to many many lenders. @Matthew G. Thank you for all the info as well, I think i was def. underestimating the time it takes to rehab until you mentioned it. So, good save.
@Ryan Blake Thanks for all the information. Its my first time posting a question and i didn't think i would get any replies, let alone all the information i just got from you! So Thank you!
@Raquel Sayago I agree with everything @Matthew G. stated. I work with an HML in north Texas and we will lend 100% of purchase and rehab costs up to 75% of the ARV (meaning that if the ARV is $100k, we would be able to lend $75k and if your purchase and rehab price are $75k or less you will be 100% financed). Even with that, you will have money to put down. I have not met an HML that will roll origination fees, points, or purchase closing fees into the loan. You will also need money to make the monthly interest only payments. And the rehab is almost always out of pocket but you can make draws on the loan you have to pay yourself back once the work is complete. Even with a 100% loan, you will need to have roughly 10% of the amount borrowed in cash to close and make your payments.
If you have any other questions about HMLs, post them here an tag me in them. I would be happy to answer them for you.
Best way to buy a property with no money down is going to be using the subject to existing financing method where you take possession of the home from a desperate homeowner and just start making payments. They sign title over to you but the loan is in their name and the lien is still on the property. You need to find a title/escrow/law firm that will utilize line 203 and 503 on the HUD-1 document. Not all will.
Hi Ryan, won’t the bank call the loan due if title is transferred to another perosn?
I don't understand the need to invest with a hard money lender with little to no money down. Can you expand on that as it sounds fishy.
@Raquel Sayago What type of investing are the two of you planning? I primarily invest in buy and hold, but I have used HML to buy multifamily, get repair costs and then refinance out. Good way to get some repair costs rolled in and refinance out your down payment if you had to put one down to begin.
@Leo Poon This is rare. They have the right to do this as most loans have a "due on sale" clause that allows them to call the loan due. The reason this is rare is because if you catch the house up on payments, use a title company that knows how to process line 203/503 of the HUD-1 and continue to make timely payments, they would be stupid to call the loan due. Banks go through a lot of expense to foreclose on homes. Why take on those expense on a preforming note. When you take procession of the property and title changes, it could be months before the bank finds out (assuming your title company didn't call to tell the bank). By the time the bank finds out, you will have 3+ months of on time payments made after catching up a non-preforming note. They will be happy that you turned an asset around for them from non-preforming to preforming. So far, the only case I have heard of through personal experience with investors I know, is that the original owner/borrower passed and the bank/lender couldn't keep the loan going in the name of a deceased person. They didn't take the home back but instead did some financing with the investor to transfer the current amount owed into their name.
If you have had experiences to the contrary, please share them. I am always willing to learn as well.
@Sam Craven It depends on the hard money lender, but what you can do is get the HML to fund the purchase up to a certain percentage of the ARV (after repair value). This is based on the anticipation that the property will warrant that higher value upon reappraisal/sale. You would want to do this, to save your money to complete the repairs, or if it only needs minor things and it is just that good of a deal, you can turn around and sell it for that ARV without having put much of your own money in.
I did this with my quad, where purchase price was $130K, ARV was 155K, and they funded $115K. Not 100%, but 89%. Better than putting 25-30% down.
ok, so i read that is Investing IN a hard money lender so that didnt make sense.
As for finding lenders that lend and provide 100% financing those deals are few and far between.
If you want to find those deals it still takes marketing dollars and time to source those, OR you can buy from wholesalers that sell properties at 75-78% of ARV and you will be out of pocket that 5-8%.
A common method is to invest TIME in marketing for deals and wholsaling those deals to flippers and landlords to generate the capital you want to get into flips.
Or you can go the route i did and start a wholesale company.
ok, so i read that is Investing IN a hard money lender so that didnt make sense.
Weird, because you specifically asked why they needed to invest WITH a hard money lender...
I don't understand the need to invest with a hard money lender with little to no money down. Can you expand on that as it sounds fishy.