Can Someone Explain Hard Money
What are the differences between a hard money loan and one say that I got for my house other than much higher interest rates?
1. If I get a hard money loan for a rehab when do I start paying it back? right away or after the work is done?
2. Are there interest only hard money options out there?
3. What are generally the terms - 5/10/30 year?
Any other info would be appreciated. My buddy and I are looking to rehab our first property and are researching various financing options.
Generally, hard money loans are short term (6 months to 12 months), high interest, low LTV loans made by more experienced, cash heavy investors to those who are undercapitalized, or who recognise and understand the risk/benefit to using expensive money for short periods of time.
[addsig]
Regarding your questions, hard money loans are typically short term, 12 months or less (a 12 month balloon) that you begin paying back usually the month after you receive the loan. The payments are interest only but you pay the loan balance off when you either sell the house, or refinance at more conventional rates after repairs.
Hard money loans are for purchase of property that is in too rough of shape for other lenders. The loans are expensige...expect to pay 3-6 points and 15+% interest. but, they are usually easier to get than a conventional loan (less credit restrictions). However, they typically only loan up to 75% of after repaired value.
John
Are hard money loans better suited for those with more money laying around?
1. How soon can you refinance if you have a hard money loan?
- example: Can I purchase a property that has an 150k ARV for lets say 70k - put 30k into with the hard money or whatever other funds I find. Assuming the fix up process takes 2-3 months can I immediatly refinance or will I have to wait for the loan to mature?
2. If I get a hard money loan for 80k what would my monthly payments be generally?
John,
Glad to meet you! I've spent many a day in the Hamilton/Fairfield area.
I think what jeffm_60 along with many others would like to see is someone who has successfully leveraged and used hard money to maximum benefit. Perhaps someone could give an example of a property they bought with hard money...
Purchase Price?
LTV of loan?
Payments? (Was it interest only)
Refi/cash out/ or conv. loan in 12 months @ 80%?
Who/what would be the ideal candidate for a hard money loan....rehab? newbie desperate for first deal?
How do you make the high cost for the money look irrelevent in the end?
I've been searching the archives but didn't see it nailed down. Perhaps I didn't search long or hard enough.
Where are our hard money borrowers?
I have used HM for the quick close time.
Walk in offer all case and a 10 day close. Sellers love that.
1. If I get a hard money loan for a rehab when do I start paying it back? right away or after the work is done?
depends on the stucture of the note. I have done 6 & 12 mo ballons
2. Are there interest only hard money options out there?
Yes.
3. What are generally the terms - 5/10/30 year?
6-24 mos is what I have seen.
Here's one house I bought:
62k Purchase Price
88k Loan(includes Closing fees+Rehab costs)
135k ARV
~850k Payments - I ended up making about 4 payments (it's been a couple of years, and I'm doing this from memory, so it's kinda fuzzy...)
Refinanced @ 80% of 135k subtracted 4k closing costs, and after again subtracting the (4*850) I cashed out around $13,000.00 to put into my pocket. I've now got the house rented out, and the renter is paying my mortgage.
The ENTIRE key to using hard money, is to make sure your LTV is low enough to cover the costs of the money.
One major reason to use hard money also is speed. One house I bought, the title search had been done, most of the prep work had been done, and I closed in 3 days from the day I first saw the house.
It's VERY expensive money, and if you
have any options, not using it is best.
Oh, and I almost forgot the best part. If you use hard money, at least in my case, it DOESN'T show on your credit report, that you've got it borrowed out, so you don't have to tie up your credit.