Typical Hard Money Requirements

[nemmert]

So what are the typical requirement for HML?  I have seen things like 100% financing available and 65 - 75% ARV...

Does that imply if you can show a property that has funding requirements less than 65% ARV you could get 100% financing?  Or do they still want some "skin" in the game?  Banks are looking for 25 - 30%, I'm guessing HML would be less?

Also, what are typical terms?  10 - 12% ARP simply compounded due at balloon payment in 2 - 3 years?  So if I borrowed $100k I would pay them $120k - 124k back 2 years from when I borrowed it? 

I have reached out to a couple local people from the site here but figured I would ask the forums as well to help set my expectations.

Lastly, any idea how banks treat rehab/development projects?  Property I'm looking at is about $230k with $100 - 120k of work... ARV would be $520 - 650k at a 10% Cap Rate.

Look forward to your thoughts, thank for all the information you have already shared.

[Gold River]

Hi,

    When they say 100% financing available they are looking for experienced investors with current (Last 3 Years) projects with successful sales and profits! They will potentially make 100% of purchase price available not FMV / ARV, so you have to have cash for points, interest payments and overhead / expenses!

65 to 75% is the norm of your purchase price with buyer supplying the balance in cash and being able to pay interest payments and overhead / expenses! Sometimes these lenders will wrap the points into the loan! You have got to have skin in the game any way you cut it, even borrowing 100% for purchase the HML still wants that experienced investor to have enough cash for repairs / rehab, interest payments and overhead / expenses!

Terms 18% flat with no points or anywhere between 12 to 16% with 2 to 10 points! Most HM loans are for 6 months or 1 year, so if you borrow $100k you will pay roughly $9k - $10k for 6 months or $18k - $20k for a year!

Private money is available in some area's of the country for 8 to 12% interest plus 2 to 5 points for between 18 months and 5 years however the property can not be in need of repairs, must be in livable condition and you must have a clear exit plan! Private money is available up to 70% roughly of FMV / ARV!

Is this a commercial property or a 5 plus unit apartment property? If you have good credit over 720 Fico and proper income and your income / expense ratio is ok you could potentially borrow from a bank, but the bank will want you to come in with $100k plus closing cost's! They would probable only loan you $250k with your cash being put into purchase and their cash going into the purchase balance plus construction draws!


                       GR

[nemmert]

Thanks for the info..

What exactly is the difference between HML and Private Money?  I guess I sort of view them as the same... people or companies, not necessarily banks, making loans to people.... what am I missing as the major difference?  Risk tolerance (thus the associated rate differences?)

[Gold River]

Hi,

    A hard money lender will loan on pretty much any property over their minimum threshold provided it is within their top percentage of loan to value with minimum or very little qualification requirements! You must have skin in the game securing your position in the deal!

A private money lender has the ability to loan on any property they see fit as long as it's in good rentable condition and meets their requirements, they require you to have position or capital in the property (Skin in the game) but provide longer term financing than hard money and private lenders will generally check your credit and may require copies of tax returns, calculate debt to income ratio's and verify your income!

Both loans have significantly less qualifications than a bank or lender and a lot of room to except things normal lenders would not!


                           GR

[matt909]

I am a private money lender/rehab lender and here is a quick re-cap that will hopefully help you..

Hard money lenders 'typically' only look at the asset (the subject property) and do not care if you have poor credit and/or are not showing strong financial documentation (bank statements, tax returns, credit report, personal financial statement).

Private money lenders 'typically' look at the underlying asset and the borrower's financial house.  Keep in mind that different lenders have different credit requirements.  For example, we have a minimum FICO of 660.  If you FICO is 630, you will need a co-borrower with strong credit.

My website, in my signature below, has some videos that may be helpful as well.

Monthly Payments:
Our rehab loans are interest only loans for 12 months.  Take the total loan amount, multiply by the interest rate, and then divide by 12 to calculate your monthly payments.

When looking at 100%, what that really means is that if the rehab amount and purchase price fall at or under 65% of the after repair value, then they'll finance both 100%.  You still have to pay the points, an appraisal, title costs, transfer tax, and any small additional title costs.

Once we close a loan, we place the rehab funds in escrow and we work on draws.  Once you complete $X worth of work, you make a draw request.  An inspector verifies the work was done, and then we release the $X to you.

Hopefully this helps you.  Again, it varies lender by lender and some people throw around words differently, so in my honest opinion, there is no black and white definition of hard money, private money, rehab loans, hard money lenders, etc - it will always depends on who you're talking to and in what context.

Matt Horwitz

[bcap]

Hi Matt,

When you say ...

When looking at 100%, what that really means is that if the rehab amount and purchase price fall at or under 65% of the after repair value, then they'll finance both 100%.  You still have to pay the points, an appraisal, title costs, transfer tax, and any small additional title costs.

How could I (Or would you expect) an applicant to prove that at the end of the project the value of the property be worth?  Do you use a specific calculation/formula for projections?  Do you require an appraisal?  A complete business plan with estimates from Contractor ahead of time?

thank you!