Hard Money Lenders Math doesn't make sense, Help!

[Sam Erickson]

Hi Everyone,

I'm residential rehabber that has completed a couple flips on my own (by living in them) and one with an investor. I'm looking to continue to do them with my investor but also more on my own (I would like to have 2-3 going at a time rather then the 1 at a time now). Being that I have a mortgage on my current house I don't qualify for a investment loan on a another property which is why I'm looking at hard money lenders.

I have looked at a few and I'm seeing this for requirements:

6-month loan

Rate: 9-18%

MAX LTV: 60%

Minimum Down: 30%

Loan fee: 3-5%

I'm good with the rate and the loan fee but what I don't understand is the LTV and Down payment. If I had that kind of money to put down, 30-40% I wouldn't need a hard money lender.

Am I missing something? also how can the LTV be 60% but then the down payment be 30%, that math doesn't add up? Any help would be appreciated.

Sam

[Chris Winterhalter]

@Sam Erickson

A lender can still have parameters at 60% LTV and 30% down. They could have advertised it 70% LTC (or loan to cost) however it's essentially the same.

Here's an example:

Purchase - 50k

Rehab - 10k

ARV - 100k

You would meet the 60% LTV on the ARV number however you would still need to put down 30% on the 60k or 18k in a downpayment (if they base it on acquisition and construction). So the LTC would be at 70% because the cost was 60k and the lender's loan was 42k.

Here's another example:

Purchase - 50k

Rehab - 10k

ARV - 80k

They will only loan 60% of the ARV which is 48k. They still want 30% down on the 48k which would be $14,400 down + you would need to come up with the other 12k to finish the project.

Each HML is going to have their on parameters so my example might not fit into every one...i.e. some might not lend rehab costs and will only lend on the current value. That changes the numbers as well.