Hard money ? how to choose - Posted by DSmith

Posted by Prashant on April 13, 2006 at 21:24:04:

Thanks John. I would disclose the source of the funds to the lender. I was assuming that the lender may be OK if I borrow the money, but not have a second mortgage to back the borrowed money. Well, I guess the lender would still want to see some of my own money in the deal.

Hard money ? how to choose - Posted by DSmith

Posted by DSmith on April 12, 2006 at 08:15:09:

I?m trying to line up some hard money to buy a wholesale deal. I found several hard money lenders through my local REI club. The problem is, I don?t know which one to choose. They all offer similar points and interest rates, 4 points and 14%. Some offer up to 75% ARV and some only 65%, but that?s not really an issue since I?ll never spend more than 65%.

So my question for you guys is, what should I be asking these lenders when I talk to them? I?m sure there are some hidden differences that I need to know about. What criteria should I use when deciding which lender to go with? Or are they all the same and I?m just over thinking it.

Thanks for your help.

Re: Hard money ? how to choose - Posted by John Corey

Posted by John Corey on April 12, 2006 at 16:21:42:

A slightly different view (from another HML).

Use them all for 1-2 loans each. See who can perform. Watch the details and the fees to see what the differences are. Then settle on 1 for the bulk of your business. If the others were good but not the best continue to do a bit of business with them as you never know when a HML will change or otherwise not be able to fund a specific deal. You also might need to use more than one if there are limits to the number of deals or a dollar limit.

Always have multiple exits when investing. Always have more than one banker who knows you and will fund your deals. You can never have too many sources of funds.

If you are able to find deals at 65% LTV you will have some profitable deals so it should work well using HM when that is the right choice.

John Corey

Re: Hard money ? how to choose - Posted by Jay Neal

Posted by Jay Neal on April 12, 2006 at 08:53:17:

We are a small HML in the Charlotte area. In our area, like yours, most of us have similar pricing but there are some subtle differences in how we operate. An individual who does hard money, or a small firm like mine, may be able to move more quickly if you need it,than the larger, regional players. You may want to ask about ALL fees; are there processing fees, draw inspecion fees, document prep fees, etc.? Sometimes the pricing may not be as close as it originally sounds.

Other than that I would say make sure you are comfortable with the person. We get lots of repeat business because we strive to be easy to work with. Find someone you feel will help you be successful; maybe they can offer advice on the market, give you the names of good contractors, etc.

Hope this helps.

Re: Hard money ? how to choose - Posted by Amy Chou

Posted by Amy Chou on April 12, 2006 at 09:42:52:

D, I agree with Jay

Brookview Financial is a National Rehab Lender, but the principles of choosing a HML should be the same, regardless of company size. Since the starting rates for HML are all comparable (4 and 14%), ask about the differences:
-What is your foreclosure rate? If there’s a bunch of houses for sale on their website, that’s an immediate red flag. Is their business in investors’ success, or in foreclosing on deals?
-Do they do a lot of repeat business? That’s testimony to their customer service and reputation.
-How many different types of loans to they make? You may want to choose a specialist for the investing that you do (commercial, residential, new construction, etc.)
-Can they close quickly? Your reputation as a legitimate RE investor is contingent on an HML’s ability to provide quick capital.
-Lastly, just contact them to get a feel for their professionalism and personality. You need a HML that you can talk to and develop a good relationship with. A rehab project will take about 6 months. You should have reliability, support and mentoring from your HML during that time.
Best of luck.

Re: Hard money ? how to choose - Posted by Prashant

Posted by Prashant on April 13, 2006 at 12:49:20:

If I find a property with good cashflow and a lender who is ready to finance 80%, can the rest 20% be borrowed from an HML without the HML requiring a second mortgage? What would be the interest rates changed by the HML?

The reason I’m asking this is that I’ve heard that if I borrow 100% of the money, the lenders are not going to like it. They would want to see some money that I put down.

Re: Hard money ? how to choose - Posted by John Corey

Posted by John Corey on April 13, 2006 at 20:52:55:

Gary has covered why a HML will not do an unrecorded second with a CLTV of 100%.

More important to your future well being is the fact that if you did a deal like this you would be committing mortgage fraud as you are telling the lender in 1st that you did not borrow the funds. If (when?) this blows up the problem is the offense is criminal (not just civil). Jail time and/or a fine is common for the cases that actually go to court. The FBI has a special unit for mortgage fraud.

Assume what you were thinking is creative and good for brainstorming. Not something that would pass muster. If you have a second property you can commonly use equity there (borrow against it) as long as you are not claiming to the new lender on the new property that you had cash. You are still borrowing the funds.

The lenders who actually care about where the cash came from will want to see the funds seasoned. This normally means they want to see statements showing the funds are liquid or otherwise not the proceeds from a new loan. They will go back 60 days.

Not all lenders care. Some only care about their LTV for their loan. Such lenders will allow a second or let you tap equity in another property.

John Corey

Re: Hard money ? how to choose - Posted by GMann

Posted by GMann on April 13, 2006 at 14:15:17:

Prashant…Hard money lenders generally do not do 2nd mortgages. They are typically a first lein to a max of 65-70%.

There is 100% financing for investment property but the combined rate (80% 1st 20% 2nd) starts at 10% or more with very good to excellent credit. Call any local mortgage broker for 100% investment property loans.