Subject to and Hard Money: How would it work?

Question

If I acquired property from a seller subject to the existing financing and then cured the loan, would a hard money lender be willing to front money for a renovation if my plan with the deal was to fix-and-flip it?

Would the hard money loan come in as a 2nd? How willing are hard money lenders to lend on deals taken subject to?

Account Closed · Answer

Normally a HML will want to be in 1st position and lend up to 70% of the purchase amount. They normally won't lend you the rehab money. So, if the value of the property is $200,000 and you buy it for $180,000 Subject To,  they will lend $126,000 minus closing costs. Yeah, it isn't quite as advertised by all the Gurus.

However, a more lenient HML might lend you 70% of (ARV) After Repair Value based on their appraisal. It just depends on the lender, on the deal and on your experience. SO, a $200,000 property they may lend $140,000 minus closing costs. You just have to ask each HML you talk with.

The most likely scenario will be that you take the property Subject To, give the seller some money, bring the loan current, pay for the rehab, while making the payments on the existing loan and when finished with the rehab either

1. Sell as a Flip or

2. Refinance getting New Financing and paying off the Subject To amount or

3. Continuing to pay the existing mortgage.