Hard Money Loans and Flips

3 Replies

Hi all,

Something I don't fully understand. I've been studying up on hard money loans, and from what I understand a lot of the time when you try to get one, you won't get the full amount. That's fine, you have to have some skin in the game and all that. What I don't get, though, is why can't you request a hard money loan for a down payment on a flip for a conventional loan? For example, say I have either enough money for either the down payment or for the rehab costs, but I cant' fund both. I'd have my own money at risk as well as the lenders. From what I've read, this isn't possible to do. I know that many would recommend getting some private money somewhere or looking for a partner, but that's not my focus here. Can someone familiar with hard money loans explain this to me?

Thanks!

@Benjamin Verrill , all lenders, hard or conventional, will want you to have money on the deal, usually to the tune of 20% of YOUR OWN cash. With conventional, unless you get a rehab loan, you put the 20% down and have to fund the rest yourself. Conventional lenders will not accept a loan from another lender as a down payment. Why would they? You are using 80% of the purchase price of their money, and have no "skin in the game".

HML are usually not interested in funding just the repairs. They want the interest on the purchase price of the property as well and it insures they are 1st lien in case things go sideways.

If you can provide 20% down, then HML will provide a loan for the remainder of the purchase price and the cost of the repairs, presuming the property qualifies. This sounds like what you need to look for. That being said, HML are expensive and can eat up A LOT of the potential profit, so it needs to be a really good deal to make it work. Anything found on the MLS is not likely to fit into this category. I have worked with one HML and they have been fast, timely and efficient but way too expensive for most deals.

So if you have enough cash for a 20% down payment, find a great deal, get it under contract and find a good HML to work with.

Basically, no one wants to be in a second position on the loan, meaning they have to wait for someone else to get paid before them in the event you default on the loan. If you have 10%-20% of the costs, you can find a Hard money lender to loan you the rest of the money. But borrowing the down payment isn't going to happen through a lending institution.

Lenders don’t care if it’s purchase or construction. They care about the size of the loan; the value of the loan.

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