Hard Money Lenders - Whats the repayment like? and how to refinance to pay them off?

[Blake Morris]

All,

When getting a loan from a hard money lender I have some questions. First, let me apologize if this can be found on a past forum discussion.

When you get a loan from a hard money lender what is the purchase process like? Do they give you the money that you need and it then becomes a cash purchase using the services of a realtor (if desired)? I am assuming you would get title insurance? Do attorneys come into play to handle the amortization payments? What about escrow? Since you are the owner...someone has to record the deed so just not quite sure how that process would work. There seems to still be costs involved even if you were given all the cash to be a cash buyer.

Secondly, after you get the property and want to pay off the high interest from a hard money lender. do most of you all use a HELOC? or a traditional mortgage?

For some one who has little capital it still seems like you would have to come up with 20 percent either now or later. Because the refi or HELOC wouldn't loan up to 100 percent. I am just struggling to come up with a scenario where hard money lending makes sense.

[Ann Bellamy]

Originally posted by Dave Savage:

1st find a property with built in equity - buying at 70% ARV is a standard most investors use.
2. Your HML's attorney will work with your attorney to draft up the mortgage for the purchase of the property. This mortgage will get recorded with the deed. There will most likely be an origination or attorney fee for writing and recording the mortgage (lender dependent).

3. You make the amortization payments and the HML will track the amoritization.

3. You have any number of exit strategies after this, with the majority of people refinancing into a conventional mortgage or getting a commercial blanket loan to mortgage a number of properties together to minimize the closing costs(if they are <$50,000 properties). You may have a 6 month minimum on the loan depending on your HML so take this into consideration when negotiating the loan terms.

I am sure this is @Dave Savage 's experience, here is another perspective:

Lenders don't give you the money ahead of time to close with cash. The loans are first position mortgages that are funded at close the same as if you were financing a house purchase with a conventional lender.

2. We typically require that you close with our attorney, however there are a few select attorneys in the area that he will work with if title has already been run. This is an unusual scenario, however. (In MA, the law requires that an attorney conduct the closing, not a title company)

3. There is no amortization, payments are interest only. We send statements monthly so the borrower knows what to pay. Payments increase as the construction disbursements are made.

3 part b. You must show your exit strategy when you apply for the loan. If you plan to hold and refinance, you must show that you can obtain conventional financing. If you plan to sell, than we must vet your ARV. Which is where everything starts anyway. We do not have minimums or prepayment penalties.

All of these comments are relevent only if they are the same as your lender. Call your local HML and ask them their terms. Be sure to ask if they charge any fees or back end fees.