Private Money Down Payment for Hard Money

[Nathan Goff]

BP Team, 

Has anyone had experience using private money to fund the down payment for a hard money loan? A few people I've talked with are willing to act as a private lender but don't have enough to fund a whole deal. Would HMLs even allow this? Would the private lender have any collateral? 

Thanks for any insight yall can provide. 

[Derek Dombeck]

I can only speak for what I would do as a lender in that scenario. 

I would allow a private lender to supply the additional money needed for your deal as long as they were in 2nd lein position behind me. This would depend upon the numbers in your deal though. I would not want to see the borrower leveraging a property up to 80 or 90 percent of the after repair value because they are not going to make any money and will be more likely to walk away from the deal if it went bad. 

Many lenders don't allow junior position leins because they cannot take a Deed in lieu of foreclosure in the event of a default.  They would have to go through the entire foreclosure process to potentially wipe out those junior leins. 

So it will be case by case depending on the lender.