Hard money loans

[Daryl Williams]

hey all, as a new investor i have been reading up onbhard money loans so i figured i would ask on here if any one could break it down in lay mans terms for me please. I am especially interested in any costs that may be needed to acquire a loan such as down payments or any other fees and also is there typically a grace period before you begin making payments.

Any and all answers will be greatly appreciated.

Thanks alot

[Ben Stoodley]

Hi @Daryl Williams

Welcome! Hope everything has started off well for you so far. Finding a reliable and proven hard money lender is a process. I suggest starting this process now, as it seems like you are, and continuing it through your first few deals. Find a lender that is a great fit for your business and you will be very happy. Here are some tips on finding a good HML:

• DIRECT Lenders: I strongly suggest working with direct lenders to avoid the possibility of your deal falling out due to financing changes. Direct lenders should also be able to close very quickly after commitment, 3-5 days.
• LTV: you'll need to ask to see their underwriting matrix on how they determine your max LTV and from that how they determine your rate and fees. Generally, most lenders will go up to 65-70% ARV. This will generally be compared to the LTV of the purchase price as well. Most all lenders will require some "skin in the game" or a downpayment.
• Down Payment: I've seen as low as 10%, 20% is more common, and 30% is a safe number to prepare for. These percentages are related to the purchase price. Most lenders will finance all of the rehab expenses as well (make sure they do). 
• Rates/Fees: every lender is different and determines rates from different variables. Generally speaking, the higher the LTV, the higher the interest and fees.... the less experienced the borrower, the higher the interest and fees... the less amount of supporting comps, the higher the interest and fees. Basically, higher risk = higher rates/fees.
• Junk Fees: need to call each lender and ask what all associated fees will be applied to the loan. They tend to be processing, appraisal, draw, underwriting, carrier, etc named "fees" , all unnecessary. 
• Asset Based: most all hard money lenders are asset based, just confirm to see how they underwrite deals and determine rates. Ask if there is a min credit score or if any proof of income is needed. 

I hope this helps you out when searching for good HML in your area. Always call the lender and talk it over with them. They are almost always asset based, so they'll need to see a deal in order for them to produce a quote. However, you should be able to figure out any junk fees, pre payment penalties, etc. to cross some lenders off your list.

Good luck!

-Ben