All Forum Posts by: Jared Sandler

Every HML will work somewhat different but I will let you know the standard flow:

1) Get pre-approved with an HML - This should be free. DO NOT PAY AN APPLICATION FEE. This is a sign of a possible scam.

2) Look for a property and get it under contract.

3) Send the executed contract to your HML. They will let you know what other little paperwork may be needed and probably order an appraisal. I am always skeptical of the HMLs that don't require an appraisal. An appraisal is the only thing you should ever pay for before you close the loan.

4) After the appraisal comes back you will get a document that outlines the amount to be borrower and all fees that will be relating to the loan (I would suggest to ask for an example of this document when you are searching for an HML so you will know what fees are going to show up).

5) Close the loan at a title company of your choice.

6) Begin work and make draws on any repair balance. Most HMLs will pay for work completed. To have the funds released you need to have a third-party inspect the house and the repairs made. Then they will release the funds based on what is finished.

7) Sell the home and payoff the loan / rent the home out and refinance the borrowed amount.

Hope this helps give a simple time-line. If you are looking to do a refi at the end of the hard money loan, I would suggest lining up that refi company at the same time you are looking for hard money. Your HML may have a company they work with frequently that will make it a smooth transition so ask.

Thanks,@Julien Hochner! Appreciate you adding to the discussion!

Justin...It's definitely a good idea. One of the benefits of hard money is that it can often times make it easier for new investors to get in the game. Some hard money lenders are also really willing to work with newbie investors to help them through the process. @Odie Ayaga is right...the more you know, the better. So, whether using HM or not, it's best to try and learn as much as you can and not rely on others. With that said, the good HML--the ones with which you'll want to work--have a ton of incentive to help guide you to success. If you win, they win.

So many great options! Texas is such an awesome state with plenty of opportunity. If you are able to be patient, Austin is awesome for long term buy-and-holds. Houston's projected appreciation is among the best in the country and the prices are still really good. Dallas job creation is set to really jump with business moving to the metroplex!

After finding an HML that will lend where your prospect house is (most will only lend in major metro areas or have steeper rates if they do lend outside metro areas), I would ask these questions:

Are you a direct lender?

This will be a gateway question. If the answer is no, that means they are a broker of some type. Typically this means they will take longer to close, may not have all the information of the companies they work with, and most hard money brokers get their money by taking an existing product and adding extra points to pay their fee. Only continue on if the answer is yes. The person you are speaking to should have an email address with the name of the company and work directly for that company. Otherwise you could be getting yourself in to a bad situation.

What is your investor success rate?

This is important to know but can be lied about very easily. Many don’t track this statistic. I don’t know if it is because they don’t really care or just haven’t thought of it. I think it is probably the most important stat. Look for groups who offer referrals to local contractors, Relators, etc. Also, look for groups that have boots on the ground in each market that know the specifics of investing in that area.

How many loans have you closed in this month?

Any good HML will know this number off the top of their head. You want a lender that is busy and closing loan in your area. Who cares if they closed 100 loans in other states, find out what they are doing in the same area you plan to be. If they are closing a lot of loans, they probably have something good to offer. A good number will vary based on the current market and the size of your metro area.

What is your maximum LTV and Initial Funding?

This is normally expressed as a percentage and that percentage is of the ARV. Most companies are between 65% and 75%. The higher the percentage, the better for you. That means they will lend more. Initial funding levels are a back way of putting the down payment required. If a company says they have 85% initial funding, what they really mean is they are going to require you to pay 15% of the purchase price as a down payment on top of the closing costs and LTV requirements. Right now most HMLs are between 85% up to 100% initial funding. Initial funding of 100% means there would be no down payment.

Do you require an appraisal and survey?

Most HMLs will require these. I am wary of the ones that don’t require an appraisal. The lender will perform a desktop appraisal but they will typically have a short view on the value of the property to protect the company’s investment which means you will be coming out of pocket more. Small-time HMLs may not require an appraisal but this could be because they will drive out and view the property themselves. Survey is a toss-up on whether or not it will be required.

Is there a pre-payment penalty?

Some will require you to pay the interest through the term or another length no matter how long you hold the loan. Just make sure that you include this requirement in your costs.

Do you have relationships with refinance lenders?

Make sure that they have a good relationship with companies that will refinance the loan for you if you are using a BRRRR method. You want to see something that has low or no seasoning for a cash out refi or that may require low amount of documents.

What is your draw fee & benchmarks for the repairs portion of the borrowed money?

Know what your fees will be to take out the repair money borrowed. Draws are almost always held back until you reach certain points in the project or that work is completed. They will also charge you to have an inspection by a 3rd party to make sure the work is done. I have seen this range from as low as $100 up to $300.

Do I need to pay anything before sitting at the closing table?

There have been numerous people on BP talking about how they paid application fees but they could never get their loans closed on any deal brought to the company. This is a practice by some less than reputable companies. One I saw charged $500 upfront to be pre-approved and would never actually fund any loans. Just beware. Most reputable HMLs will not charge anything until you are sitting at the closing table and all fees will be listed on the HUD-1 closing document.

And of course, what are the points, interest, and attorney/document/admin fees for the loan?

This will vary based on region but in general 2 – 5 points, 11% - 14% APR (meaning this is the annual rate so divide it by 12 to get the monthly interest amount), and documents fees can be from $600 – $1,900. The document fees are what will vary wildly from company to company. Just know them going in so that you can properly budget. You will also want to find out if payments are interest only or if some principal is built in. Most hard money will be interest only payments on the full approved balance of the loan whether or not if you have pull the draw funds for repairs.

If you have any other questions, post them below so that we can all learn from the answers.