Hard Money Lender-How they operate?

[Rigo V.]

I had a few questions on HML-

1) Knowing I will most likely be buying a foreclosure that requires cash to purchase- Am I right in thinking I should qualify/Pre-approve with a HML first before finding a property? Or is it the other way around?

2) Lets say the property is 50K and they rehab is 50K. What are the typical terms? I know these vary and know I will need to bring money to the table just not sure how much

[BJ Everson]

@Rigo V. This info might change based on you being in a different state than I, but...

I've worked with a HML on all my deals and I would say get pre-approved first so you know they will lend to you and you can include a pre-approval letter when you submit offers, which is a big deal with the market so hot.

#2 what really matters to the HML is that the project will hit their requirements on LTV vs. what they loaned you. In your example of $50k purchase $50k rehab; if the ARV is only $100k then they will only provide you with $20k for the rehab assuming their LTV requirement is 70% (most are right around 70-75% LTV of ARV). So with your two cost numbers your project would need to appraise for $143k or higher for the HML to provide you with $50k purchase and $50k rehab budget.

Terms can be all over the place. Recently, I've seen interest rates between 9.5-11% interest only for 9 months is what my HML offers. with roughly 5 points rolled into the loan on top of the normal closing costs. This makes them expensive as that just ate up some of your future equity in the deal. So be sure to do all of the math before submitting an offer.

Hope this helps! Let me know if you have any other questions