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100% Hard Money Loans

100% Hard Money Financing

I got your money, right here…..

I know, all over the Internet it says you can get 100% hard money loans for your deals. And you can, IF you have a true private lender or friend financing you. You may even find a reputable person to partner on a deal with you, and bring in funds.

Beware of websites promising 100% Hard Money Loans. Most of them exist to take your “membership fee” or other large upfront fees totaling thousands of dollars. DON’T do it.

They make most their money from charging up front fees, NOT lending money. Although a few of them may actually do a loan for a slam dunk killer deal, if they do, they’ll end with most of the potential profit too.

Real Hard Money Financing

In my world, we require you to have some money invested in the deal. In short, if you’re not willing to put your money in the deal, why should I?

For budgeting purposes, plan on 20% of the purchase and rehab funds from your own money, plus closing costs. Most loans we do end up at 15% from you, but you should plan appropriately. On the low side, you may need as little as 10% of the purchase price, and get all the rehab funded for you. It really depends on the specifics of the deal, and your experience.

Upfront fees? Yes, we have a small one. You only pay it AFTER we approve you AND we approve your deal. There’s no fee to join some “special club” to get access to overpriced financing. We use it to cover some of our up front expenses and to weed out people who aren’t really serious. If for some reason, we can’t do your deal after we’ve approved it we will refund it to you. (Assuming you provided good information)

Investor Lending Market Update 4/10/2016

dcp logo headerI thought you may like an inside look at what’s happening in the investor lending market. Investor lending is currently in a state of flux. That makes everyone nervous, and frankly, it’s driving us a little nuts.

Unfortunately, we’re only getting bits and pieces of information. Everyone is reluctant to tell us where their funding is going or what the new requirements will be.

Here are some specific examples we’ve seen recently.

HARD MONEY

  1. Houses with demo finished down to  bare studs are suddenly a problem, whereas a few months ago it was not. But, it may not be a problem going forward.
  2. An appraisal on a high valued property over ½ completed took 5 months to get. The loan was rejected the by lender when it was finally received. I think if the appraisal had come in quickly, it would not have been a problem, see #1.
  3. Several BPOs have come in much lower than expected. We’ve seen two causes for this
    • the agent specifically choosing the lowest priced sales instead of truly comparable sales
    • the agent chose comps from a lower priced neighborhoods nearby, and even properties with fewer bedrooms.
  4. Getting status reports and timelines is a challenge. Some of the lenders seem to be adopting a “black hole” mentality, whereas the only information we get is “we’re working on it.” This is especially true on the rental side.

RENTALS

Rental loans are taking a much longer time to process than before.

  1. Low priced rentals (Loans under $125,000) are taking even longer. Yes, I know $125,000 is high for rental in the Midwest.
    • Loans under 75,000 are going to be harder to get approved.
  2. Timelines have been changed from “30 days” to “30 business days”. One word, but that adds two weeks to the process.
  3. One lender simply shut down their rental program.
  4. Others are increasing their minimum loan amounts
  5. One major buyer of mortgages just raised the minimum amount for loans they buy to $75,000
  6. Two lenders increased their refi seasoning to 12 months. That still leaves a couple lenders at 3 and 6 months to do a cash out refi.

GOING FORWARD

Hard Money

  • Overall we’re still getting reasonable rates and terms for hard money loans. 4pts & 12% average, less for those with lots of experience.
  • Expect more scrutiny on the rehab side of the deal.
  • “As is” value at the time of purchase is now a factor with most lenders
  • 20% is still the norm for your down payment. The right deals can be done with only 10% down on the purchase.

Rentals

  • Plan on 6 weeks for a loan. If/When that changes, I will let you know.
  • Property value must be at least $50,000.
  • There are only a couple lenders available that will do rental loans for under $75,000.
  • Loans under $75,000 have minimum fees which will make the costs look higher compared to the loan amount.

Summary

Investor lending requirements will continuously change. We’ll keep you updated.

 

FINE! YOU’VE DEMANDED IT, I’LL BUILD A REAL ESTATE FINANCING WEBSITE

Ok, Ok, I hear you. You want a website with answers to your hard money questions, forms, and more.

You want one source for all your financing needs.

I give up. I’ll do it.

No, I’m still not getting an office. No need for the overhead. I’d just have to charge you more to pay for it. Neither of us wants that.

I only need a small loan of $25,000, why is it so hard to get?

Small Loan Scenario

Have you wondered why it’s so hard to get a small loan for real estate?

Honestly, a small loan for real estate just isn’t very profitable. Just as you are borrowing money to make a profit, the lender wants to make a profit too. The interest received on a small loan isn’t very profitable. The risk of losing money is much greater with a small loan than large one. I know, it doesn’t seem to make sense at first, but read on.

First, the lender has to cover the overhead of setting up and approving the loan. Some lenders will charge points and fees to cover some or all of this cost. They still have to pay the overhead for every loan that gets rejected too. Compare this: A lender charges $2,500 up front for a $25,000 small loan. Does that seem steep? The same lender charges $2,500 for a $150,000 not so small loan. It doesn’t seem as bad now does it? The fee didn’t change, but our perception of it did. It’s the ratio that changes.

Once a lender makes a loan, every month the lender has the expense of servicing the loan. That includes: sending statements, processing payments, tracking balances, end of year reporting, sending a 1098, government compliance, etc all those costs have to be covered, and they cost the same to the lender whether it’s a small loan or a large loan.

If a small loan goes unpaid, just like the expenses of setting up the loan, proportionally there is a large cost with the attempt to collect on the debt. So, even if you find a lender that will do a small loan, they typically want better credit to reduce the chance of the loan going bad.

Cheap houses purchased with a small loan are typically in areas that have more foreclosures, and more damage to the property when it is foreclosed. This increases the chance of loss to the lender even after they foreclose on a property.

Is it any wonder lenders are reluctant to do a small loan? It’s easier to get a loan completed for $100,000 than $25,000. Admittedly, we do get some small ones done, but with the challenges listed above, it’s not nearly as often as we’d like.

What is a Commercial Mortgage Broker?

What is a Commercial Mortgage Broker?

A commercial mortgage broker is your central point for funding your real estate investments. A broker has existing relationships with wholesale and retail lenders. Since a broker works with multiple lenders, they’re not limited to the funding programs available from a single lender.  They use those relationships to match their clients with the right loan at the right price.

A great broker takes the time to look at your financial goals, how this loan will impact them, and how to position yourself for the future. A great broker is going to help you expand your business. A bad broker will be a dreaded middle man just trying to take your money. Choosing the right broker is critical to your success.

A good broker understands that every real estate transaction is unique. Brokers are flexible enough to make sure financing is not an unexpected obstacle when you pursue a real estate deal.

Consider a commercial mortgage broker a networking resource. They can help connect you with other people in the real estate industry. People who can help you do even better.

No Money Down

Can I get a Real Estate Loan with No Money Down?

Q.  I don’t have any money or equity, and my credit sucks. Can you give a rehab or rental loan.

A. No.

Q. But it’s a great deal!

A. Still no.

Q. But….

A. No.

Really, this conversation comes up way to often. You need to have skin in the game. Cash is preferred, but sometimes equity can work. If you are short cash, work on strategies that will allow you to grow some capital for investing. Preferably, you can do this through a real estate related activity, but even a part-time job can get you the capital needed to jump start your real estate investing.

All that said, there actually is 100% financing available for real estate investors. However, the cost of the loan is so high, you are almost always better off selling the deal to someone else, or putting together some other creative solution.

What is a Hard Money Loan?

What is Hard Money?

hard money loan is an asset based loan secured by real estate, and usually used for properties that don’t qualify for traditional financing. Interest rates are higher than conventional real estate loans because of the higher risk and short duration. Most hard money loans are used for rehab projects lasting 6 to 9 months

Typically, loan would be up to 65% or 70% of the After Repaired Value of the property.  For example, If the property is worth $100,000, a lender would lend $65,000 – $70,000 against it.

The lender will also want to see the borrower putting their own funds into the project. 20% of the purchase price and estimated renovations is common.

The asset is the primary qualifying criteria for a hard money loan. Credit scores, income and other criteria can also be factors.  Experience with similar projects, and cash reserves are frequently considered before approving a loan.

In commercial properties a bridge loan is similar to a hard money loan.

A Hard Money Loan has two distinct advantages over a traditonal mortgage.

  • The loan amount is based on the improved value of the property.
  • To a large degree, the condition of the property doesn’t matter.

The real estate investor is able to get funds to purchase and renovate the property. The community gets an improved property. Someone will get to live in a greatly improved home.