San Diego, CA · Member since 2011 · 85 posts · 67 votes
Is there an advantage to Hard Money Loans over a Line of Credit at a bank? If I'm planning to buy SFH for a rental at 65% LTV, do light rehab carpet/paint, get it rented, then refi into conventional loan at 75% LTV.
If the Line of Credit is 9 or 10% versus HML which might be 4 points, plus $895 fee, and then 14%. Since most Investors do HML, there must be an advantage to that, maybe it not showing up on credit since they don't report?
I don't think that hard money has an advantage over a bank LOC as you describe. I think if the investor goes with hard money, they typically don't have the option of the bank line of credit.
Also wanted to add this involves buying cheap houses at 25k-30k, with ARV of 50k-60k, so a 75K line of credit could be enough to have two houses going at once.
if you use a line of credit there will not be a "mortgage" on the house, which means they are a cash sale, which means you will be limted to a percentage of what you paid for the house to finance, since you are not 'refinancing",,,
If you borrow the money from someone else, and they put a lein on the property, do the proper paperwork etc, you then have a mortgage to refinance,,,unfortunately you can't do a hard money loan to yourself
I don't think that hard money has an advantage over a bank LOC as you describe. I think if the investor goes with hard money, they typically don't have the option of the bank line of credit.
I agree with Jon. Also, depending on the hard money lender and the property itself, you may run into issues with the time frame. If you use a LOC, there shouldn't be any short-term constraints relating to when you pay it off.
So if I go with the Bank LOC, buy a house, do light rehab/carpet/paint, get renter...then what is the road to refi? Do I get wait six months, then get new appraisal then go to mortgage broker and try to get 75% LTV?