All Forum Posts by: Ryan Blake

@Jamal Fontenot You should be able to still borrow on another property. You just need to find a 100% LTC lender. The Houston area is hot right now but prices haven't overtaken rents just yet (like they have in most of DFW). The refi may be a problem. Also, FHA is meant for owner occupied homes or homes that you intend to owner occupy. Just be careful about what you post as there could be mortgage fraud.

@Sandy Sawyer is right about cashout refinances needing a 6 month seasoning period. However, if you use a 100% LTC lender, you can just do a rate and term refi without any seasoning needed (you can't take cash out form the closing). The idea would be if you didn't make a down payment and you only paid the loan fees, title fees, etc at closing and only hold the property in the hard money for 2 - 3 months then you should have very little invested in the property, say around $10,000 on a property with an ARV of $180k. This doesn't fully fall into Brandon Turner's BRRRR because you still have some money left invested in the property but it at least leaves you with very little left in it and a long term note after just 2 months into the hard money loan.

@David Taylor I agree with @Rick Pozos on this one unless you are doing this as a rental. Then it really doesn't matter as much to how much you have invested (just never be upside down on it) because you need to focus on your cash flow to determine if it is a good deal. If this is a flip, I would get out of it. I know every market is different but here in DFW I don't buy flips when my hard costs (purchase + rehab) are more than 75% of the ARV. Even then, I prefer to be at 70% or below. Every investor will have a level they are comfortable with you. I just don't know many that are comfortable with anything above 80%.

@Sebastian Chaco I don't know of a good lender in the area for you. Sorry.

But...

After finding an HML that will lend where your prospect house is (most will only lend in major metro areas or have steeper rates if they do lend outside metro areas), I would ask these questions:

Are you a direct lender?

This will be a gateway question. If the answer is no, that means they are a broker of some type. Typically this means they will take longer to close, may not have all the information of the companies they work with, and most hard money brokers get their money by taking an existing product and adding extra points to pay their fee. Only continue on if the answer is yes. The person you are speaking to should have an email address with the name of the company and work directly for that company. Otherwise you could be getting yourself in to a bad situation.

What is your investor success rate?

This is important to know but can be lied about very easily. Many don’t track this statistic. I don’t know if it is because they don’t really care or just haven’t thought of it. I think it is probably the most important stat. Look for groups who offer referrals to local contractors, Relators, etc. Also, look for groups that have boots on the ground in each market that know the specifics of investing in that area.

How many loans have you closed in this month?

Any good HML will know this number off the top of their head. You want a lender that is busy and closing loan in your area. Who cares if they closed 100 loans in other states, find out what they are doing in the same area you plan to be. If they are closing a lot of loans, they probably have something good to offer. A good number will vary based on the current market and the size of your metro area.

Can you share a recent closing document or HUD?

This will show you more evidence of the fees they really charge. Not all lenders will share this as they will need to get approval from the borrower before providing.

What is your maximum LTV and Initial Funding?

This is normally expressed as a percentage and that percentage is of the ARV. Most companies are between 65% and 75%. The higher the percentage, the better for you. That means they will lend more. Initial funding levels are a back way of putting the down payment required. If a company says they have 85% initial funding or LTC, what they really mean is they are going to require you to pay 15% of the purchase price as a down payment on top of the closing costs and LTV requirements. Right now most HMLs are between 85% up to 100% initial funding. Initial funding of 100% means there would be no down payment.

Do you require an appraisal and survey?

Most HMLs will require these. I am wary of the ones that don’t require an appraisal. The lender will perform a desktop appraisal but they will typically have a short view on the value of the property to protect the company’s investment which means you will be coming out of pocket more. Small-time HMLs may not require an appraisal but this could be because they will drive out and view the property themselves. Survey is a toss-up on whether or not it will be required.

Is there a pre-payment penalty?

Some will require you to pay the interest through the term or another length no matter how long you hold the loan. Just make sure that you include this requirement in your costs.

Do you have relationships with refinance lenders?

Make sure that they have a good relationship with companies that will refinance the loan for you if you are using a BRRRR method. You want to see something that has low or no seasoning for a cash out refi or that may require low amount of documents.

What is your draw fee & benchmarks for the repairs portion of the borrowed money?

Know what your fees will be to take out the repair money borrowed. Draws are almost always held back until you reach certain points in the project or that work is completed. They will also charge you to have an inspection by a 3rd party to make sure the work is done. I have seen this range from as low as $100 up to $300.

Do I need to pay anything before sitting at the closing table?

There have been numerous people on BP talking about how they paid application fees but they could never get their loans closed on any deal brought to the company. This is a practice by some less than reputable companies. One I saw charged $500 upfront to be pre-approved and would never actually fund any loans. Just beware. Most reputable HMLs will not charge anything until you are sitting at the closing table and all fees will be listed on the HUD-1 closing document.

And of course, what are the points, interest, and attorney/document/admin fees for the loan?

This will vary based on region but in general 2 – 5 points, 9% - 14% APR (meaning this is the annual rate so divide it by 12 to get the monthly interest amount), and documents fees can be from $600 – $1,900. The document fees are what will vary wildly from company to company. Just know them going in so that you can properly budget. You will also want to find out if payments are interest only or if some principal is built in. Most hard money will be interest only payments on the full approved balance of the loan whether or not if you have pull the draw funds for repairs.

If you have any other questions, post them in the same thread below so that we can all learn from the answers.

@Sarah Simonin Are you looking to buy from a foreclosure auction? I am not familiar with the OH foreclosure auction rules. In Texas, we have to provide funds within an hour of close. You would not have time to get a loan to cover that. Most lenders won't do quick fundings like that because there is no time for a title insurance let alone a title check. Just because it is at a foreclosure auction, doesn't mean you are getting the property. Have you already researched what kind of title you will get when you buy from the auction? That will be important to. And is there a redemption period? Most lenders don't like working with properties that have a redemption period.

I think we need to know more about what you mean when you say you want to buy a home in foreclosure. If it is an REO then it should be basically a normal transaction. If it is pre-foreclosure then it will just need to be an expedited closing before the auction sale date.

Would love to help and provide more info but need to know more parameters around what you are doing.

@Timothy Sumpter @Michael Blakeney @Don Panchamsingh

This is not a typical practice. I know very few lenders that charge upfront fees. Are there fees and will you have to pay them? Yes. But most lenders allow the title company to collect and distribute the funds. That is the title / escrow company's job. It also means the lender doesn't get paid if you don't close on the home. I would use much caution going into this. I haven't heard that this lender is doing bad practices but it is suspect that they are charging such a large fee upfront. There are a few good lenders out there who will charge a $50 - $100 application fee but $1,000 is very steep without providing anything in advance. Just use your best judgement as an investor.

Great question! There is already one good answer but this will be specific to your example.

LTC stands for loan to cost. This will always be based off the the costs needed to do your project. In your case, $160k. So you would take 88% (the LTC number you were using) and multiply it by the $160k. 0.88 x 160,000 = $140,800. This is the maximum amount of the loan when looking at LTC.

LTV stands for loan to value. This will ALMOST always be based off the ARV (after repair value) of the the property when dealing with a hard / private lender. When dealing with a conventional mortgage this will ALMOST always be based on the as-is value of the home. In your case the ARV is $200k. So you would take the 70% (the LTV number you were using) and multiply it by the $200k. 0.70 x 200,000 = $140,000. This is the maximum amount of the loan when looking at LTV.

All lenders that I know of will lend to you based on the LOWER of these two calculations. So you would be able to borrower $140,000. This will leave you with a $20,000 down payment on top of your loan fees, title fees, and any other charges that may be required per your purchase agreement or the agreement with the lender.

I hope this sheds a little light on the LTC and LTV numbers. It isn't one or the other but you use both and then look at the lower of the two.

Please feel free to post more questions in this thread and we can all work on the answers and learn together.

I did mean LTV (loan to value) but that can be expressed as ARV as well. In short, this number is the ratio of what the Loan amount will be compared to the Value (ARV) of the property. LTV is a lender term so most lenders you work with will use LTV. The unique thing with hard money lender or private lenders is that they will look at the LTV as the value of the after repaired value. Mortgage lenders will look at the LTV as the current value of the property.

@Ryan Chatterton I think you need to heed @Jon Kelly's advice and look into BRRRR if you don't have the funds available to cover the rehab. This is the method where you use short-term financing (hard money/private money/HELOC) to buy and fix up the property and then refinance it into a long-term note to hold as a rental. If your plan is to flip, then you can use a mortgage to purchase but know that you will likely need to put down 10%+ and will need to fund the repairs through a HELOC or private money like a friend or family. Most hard money or larger private lenders will not take a second lien position on a property. The other option is to just start with hard money. Most hard money lenders will require 10% down payment or even less and will cover all the repairs.

@Antonio Barnes I suggest checking out these groups. I have a few more but couldn't find links for them.

IMPACT Grapevine - https://www.meetup.com/DFW-REI-Network-Investing-Meetup/ - Started in Bigger Pockets this group meets once per month. Just straight information and super friendly atmosphere. Free dinner provided.

IMPACT HEB - https://www.meetup.com/realestate-427/ - This is a newer group and has a power couple who lead it. They invest all over DFW and offer mentoring on top of the monthly informational meetings.

West DFWREI - https://www.meetup.com/West-DFW-REI-Group/ - This is a smaller group but provides tons of information. The leader is a pro at sub-to deals and is very giving of his time to help out new investors who are serious. The group meets once a month in the West Fort Worth area.

1RE Club - https://www.meetup.com/1REClub/ - This group is led by a former Rich Dad coach who has been investing in DFW since the 1980’s. Super knowledgeable and takes integrity and his Christian faith into all the deals he does. He also offers coaching where you joint venture on deals. This meeting is once a month at the Fort Worth Botanic Gardens meeting rooms.

DFW REI Club – www.dfwreiclub.com – meet about 50 times per year. Lots of different topics and a very friendly group.

DFW Mid Cities REIA - https://dfwmidcitiesreia.com/ - meets each month and is completely free. Usually free food and free drinks.

AREA Real Estate Investing Group – https://www.meetup.com/realestate-445/ - Meets once per month and is usually well attended

@Justin Franklin First off, DO NOT PAY SOMEONE AN APPLICATION FEE. Second, NEVER PAY THE LENDER BEFORE CLOSING. I don't think I need to say that again but when there are large fees upfront, it is very likely a scam.

Rates and terms are very geographical. This is because the property is what is securing the loan, not yourself and that means certain areas have homes that retain their value better than other areas. I would search around but you should expect to be in the 9% to 14% range with 2 - 5 origination points. The doc fee should be $0 to $1,500. And the lending terms should be 80% to 100% LTC and 65% to 75% LTV. Anything outside of these rangers may be too good to be true or just a really bad deal depending on which side it falls.

As for what to look for in a lender... Try this:

Do you require an appraisal and survey?

Most HMLs will require these. I am wary of the ones that don’t require an appraisal. The lender will perform a desktop appraisal but they will typically have a short view on the value of the property to protect the company’s investment which means you will be coming out of pocket more. Small-time HMLs may not require an appraisal but this could be because they will drive out and view the property themselves. Survey is a toss-up on whether or not it will be required.

Is there a pre-payment penalty?

Some will require you to pay the interest through the term or another length no matter how long you hold the loan. Just make sure that you include this requirement in your costs.

Do you have relationships with refinance lenders?

Make sure that they have a good relationship with companies that will refinance the loan for you if you are using a BRRRR method. You want to see something that has low or no seasoning for a cash out refi or that may require low amount of documents.

What is your draw fee & benchmarks for the repairs portion of the borrowed money?

Know what your fees will be to take out the repair money borrowed. Draws are almost always held back until you reach certain points in the project or that work is completed. They will also charge you to have an inspection by a 3rd party to make sure the work is done. I have seen this range from as low as $100 up to $300.

Do I need to pay anything before sitting at the closing table?

There have been numerous people on BP talking about how they paid application fees but they could never get their loans closed on any deal brought to the company. This is a practice by some less than reputable companies. One I saw charged $500 upfront to be pre-approved and would never actually fund any loans. Just beware. Most reputable HMLs will not charge anything until you are sitting at the closing table and all fees will be listed on the HUD-1 closing document.

And of course, what are the points, interest, and attorney/document/admin fees for the loan?

This will vary based on region but in general 2 – 5 points, 9% - 14% APR (meaning this is the annual rate so divide it by 12 to get the monthly interest amount), and documents fees can be from $600 – $1,900. The document fees are what will vary wildly from company to company. Just know them going in so that you can properly budget. You will also want to find out if payments are interest only or if some principal is built in. Most hard money will be interest only payments on the full approved balance of the loan whether or not if you have pull the draw funds for repairs.

If you have any other questions, post them below so that we can all learn from the answers.