Pam
I believe you are confusing the two types of lenders.
A true HML does base the loan on the deal. Subprime lenders look at credit scores.
Here is the difference: there are exceptions of course
HML’s are investors with cash that most no longer want the headaches of landlording, or rehabs. They make their money with points and high interest and turn loans short term (6-12 months. HML’s will sometimes look at credit just to get a feel of who they are dealing with unless they know you. As HML’s are indivaduals each one will have a different lending criteria as he sees fit. Your local REI group should have some in attendance.
Sub-prime lenders are like traditional lenders that deal with non-conforming situtations, credit score, high debt to income, NOO, and a variaty of conditions.
When I first started educating myself on RE, I understood that HMLs mostly care about the property, not you the investor. Now, after more education that seems to be an oversimplification to say the least.
Though I want to start out wholesaling, what are my chances of getting a HML if I need it? My FICO is 702, but hubby had a business deal go really bad about 3 years ago and we had to declare bankruptcy. Then, though we thought we could hold onto the house, we couldn’t so we were foreclosed upon a little over a year ago. We rent a nice high-end house that we can buy if we want, and landlady would give us a very good referral.
My husband’s score is lower because his name took more of a hit from all we went through.
So should I realistically just stick to wholesaling for a while (like a year?) and get my businesss going and collect some cash reserves, or, if I come across a really good rehab, should I even attempt financing with a HML?
I’ve also thought about getting into mobile homes, personal my credit doesn’t seem to matter much there. Thanks for any input. This has been very hard for both of us, but we’ve sure learned a lot (about whom to trust and whom not to!!)
Re: What are the chances of my getting a HML - Posted by John Corey
Posted by John Corey on June 10, 2006 at 07:22:14:
Pam,
Max does a good job of addressing the HML part of your question. A true hard money lender will not pull credit so the score means nothing when it comes to the loan decision.
To your other points.
If you lack working capital or a cash buffer then a focus on wholesaling is a great idea. Better to have a buffer for stuff you were not expecting.
Rehabs can make money. They take a bit of time and you can never exactly budget for the work as stuff happens. Hence the cash buffer is helpful in case there are delays, cost overruns, etc.
You can invest without your husband being on the loan. Hence his credit score is less of an issue. You can invest using other styles (subject-to being one) so a credit score is not a factor.
Some RE investors will say to continue renting as you can rent more house than you can buy for the same monthly. If you have an option agreement with the landlord you can lock in the future price while not having to pay out the extra cash flow now. Hence renting might be the best strategy while you build up more income and let the credit issues settle out.
Your investing activities now are more or less a job in that the income pretty much stops when you stop selling time. Hence you want to shift the focus over time to a style that builds up a passive income. This does not mean a complete shift from wholesale deals or other things that produce a lump sum. Cherry pick deals to buy and hold or use other techniques to create streams of income that pay you even when you have your feet up (day off or family emergency). Your future will be more secure when you have income that is not tied to hours being sold. Create a longer term plan (something out beyond the next 12 months) and then see how that shapes the short term activities.