What Hard Money Lenders normally do:
- Interest Rate: 12-18%, interest only
- Points (percent of loan amount): 2-5 points
- Term: 5 years or less
- 60 – 75 percent LTV or ARV
o The lenders can increase or decrease the interest, points, amount they lend, terms or anything with the loan. It is their money.
- ARV is After Repair Value. This means that the lender finances a percent of the value of the property or value of the home when it is fixed up.
- LTV is Loan to Value. This means that the lender finances a percent of the offer given on a home. This has nothing to do with the value.
o Examples of these are as follows:
Jane has a house she wants to buy for 150K. She offers 100K. A lender of ARV and a lender of LTV are financing 75%.
• The lender that is working with ARV will lend $112,500 (75% of $150,000 value is 112,500)
• The lender that is working with LTV will lend $75,000 (75% of $100,000 offer is $75,000)
The lender working with ARV would pay for 100% of the purchase for Jane. (It is important to note here that for hard money lenders there is no such thing as 100% finance loans. There are loans where they will cover 100% of your purchase if you purchase the home under their ARV percentage.) Her offer was $100,000. The lender would cover up to $112,500. Some lenders that work with the ARV like this will pay her money at closing also. In the scenario of Jane she could potentially get $12,500 for fix up or just money in her pocket.
The lender that works with LTV may not be bad because they may allow a second or even third loan on the property to equal 100% of the purchase and some LTV lenders will pay fix up costs.
If you would like the chance to work with me or one of my fellow real estate investor coaches and our advanced training programs, give us a call anytime to see if Dean's Real Estate Success Academy and our customized curriculum is a fit for you. Call us at 1-877-219-1474 ext. 125