HML, Conventional, Portfolio. Do any give you liquid?

Question

I am trying to make sure I truly understand how lending works... I have always thought that when you have a conventional mortgage, they "lend" you $100k (as an example) for the house, and that is pretty much collateral... You don't ever see a dollar because the money = the house.

For HMLs... I always hear that they lend a certain LTV, plus some rehab costs possibly. So let's say 75% LTV + 10k in repairs... Your loan is 85k. Now, as a rehabber, you need funding in order to make the repairs! So you have the 25k as a downpayment for the home that you use with your personal money... How do you pay the crew for the repairs? Does the lender physically provide you a money order/wire funds etc.?

And what about portfolio lenders?

Andrew Postell · Answer

@Jazmine S.  each Hard Money Lender could have a different process but generally speaking 10% is paid up front for supplies and then the remainder upon completions.  If the job is small then maybe they just get paid all at once.  For a conventional rehab the contractors will be approved.  Proper insurance and proof of experience is required.  Nothing complicated but each contractor is approved in this fashion.  And the funds are paid....well, I honestly cannot remember if the lender pays the contractor or if the lender pays you and then you pay the contractor.

Jazmine S. · Answer

@Andrew Postell Also what happens when I have a GC for carpentry etc., an HVAC crew, an electrical crew etc... Does the lender cut checks for all people? They would all be on different schedules...? Help! Lol. ;)

Jazmine S. · Answer

@Andrew Postell Yes Andrew, this helps as I was hoping to pay my contractor in this regard, but I did want to clarify... The funds go directly from the lender to the contractor in this scenario, correct?

Andrew Postell · Answer

@Jazmine S. with either a Hard Money Loan or a Conventional Rehab loan the money is normally paid to the contractors in "Draws".  Meaning the contractors get their money as the work is completed.  That way the work is inspected before they get paid and it limits your exposure (if they skip town or something).  Hope this helps but feel free to ask more questions if you need.  Thanks!

Chris Mason · Answer

FNMA HomeStyle is a renovation product that is investor friendly for SFRs.

Post-closing, the funds are disbursed to your contractors as the work is completed and confirmed to be up to both the standards of the loan program, and your standards.