Need Help Understanding HML terms...

[Sharon Evans]

Hi All,

Please be patient and kind, as I'm new to using hard money lenders, and am a tad confused. Using hypothetical numbers, let's say I need $80k to purchase a property and $50k to rehab, totaling $130k. The ARV is $200k.

1) I was told by a potential HML in Atlanta, GA that there are no draw requirements since they lend based on LTV, not ARV. What exactly does that mean? My next question to him will be "What is the maximum LTV?", but does his statement mean that they do not lend rehab costs? Will I be expected to show that I have the rehab costs already in the bank?

2) How does a HML work if I only want to finance the purchase costs, and use contractor financing for the rehab? I'm sure they would perceive some risk in this scenario since they aren't financing the entire process, but I'm curious as to how their closing requirements (in terms of "showing the money") would change based on that scenario.

3) What if I find a lender who will finance 90% LTV and 100% rehab, but my contractor is willing to wait for the draws. Would I still be required to pay the rehab costs upfront before a draw can be made? This part is confusing because I'm in talks with LOWES, who will either finance or take draws from the lender, for a huge portion of the rehab. Being a large corporation, they can afford to wait on the draws or to finance the rehab portion to me directly at a lower interest rate than the HML. I want to go this route, but I don't really understand how this scenario will be handled by the HML.

Thanks for your insights!