Four ways exist to fund a property:
- Cash Payment
- Traditional Mortgage Route
- Private Money Loans
- Hard Money Loans
Sure there’s an endless variations of how those four ways can work out but basically it comes down to a simple who do you get money from; Myself, A Bank, Investors, or People I know. When becoming an investor you most likely will eventually run into the situation where the banks are going to start denying you traditional mortgages and it’s time to become creative. Sure there are Investors out there that have had super relationships with the right banks and they haven’t cut off the traditional loans but keep in mind that different situations require different types of funds.
While we were chasing Zavala, our other property came up at the same time; Arlene. And we panicked, not sure we’d be able to get two conventional loans to cover the properties based on Credit and Income. So we began looking at our options. We had the cash to pay cash for one and put up the down payment for the other, but it would have required almost everything left in the kitty to do so, and left no cushion for the things that happen. I talked about this back here, in regards to Arlene.
I knew we hadn’t made the contacts to borrow from people we knew, which left us with the last option, Hard Money Loans. I looked around the Internet with a couple of quick google searches and discovered a couple well reviewed HML’s in the area. After contacting them via their websites, only one had the customer service to call me back and try to discover what my needs were.
Moving to make sure that we wouldn’t lose both properties, I began the loan application with the HML that we found and gave them all the information that they needed. You know just like a bank; Social Security Number, Work Verification, Credit Score, Proof of Funds, and a kidney. It was pretty simple and painless, I had pre-approval at the end of the 10 minute phone call! When I received the fee schedule it looked something like this:
TERMS OF LOAN
1. Property is : INVEST PROPERTY
2. Transaction is a PURCH
3. Term 6 (SIX) months
4. Balloon Date: APRIL 1, 2013
5. Total Principal Amount: $81,550.00
6. Interest Rate 14.5%
7. Type of Loan: Interest Only
8. First payment date: NOVEMBER 1, 2012
9. Payment Frequency: Monthly
10. Total Payment amount: $985.42
11. Default Interest Rate: 24% after the 20th of the month
12. Grace period: Five (5) Days
13. Late fee: is 10% of any amount due, including principal, or $150, whichever is greater.
14. Per Diem= $32.85 (360 DAYS)
FEES AND IMPOUNDS
17. Set up fee to: $125.00 to
18. Broker fee #1: $4,077.50 to
19. Broker fee #2 to
20. Investor Fee: to EACH BENEFICIARY
21. Investor Wire Fee: $30.00 to each lender listed on the deed of trust
22. Monthly Property Tax amount: $103.28
23. Months Tax Impounds: 2 months @ $103.28
24. Monthly Insurance amount: $74.00
25. # Months Ins Impounds: 2 months @ $74.00
26. Prepaid Interest: from Date Of Funding thru OCTOBER 1, 2012 to Beneficiary
27. Insurance: Borrower to pay full year unless otherwise stated.
Yikes! Pts/Closing Costs: $4202.50 + 30% Down! Monthly Interest payment: $985! So we ran the numbers and discovered that it was going to cost us almost $8,000 over 6months to go with the HML! The Additional Pts and the 10% higher interest a month. But we knew we’d be able to refinance in 6 months. So we didn’t panic.
But then our traditional mortgage broker came back to us saying he could finance both properties at the same time! So since this was going forward I never bothered to sign the loan docs for the HML. Now, here is where I simply was blown away by the HML: They Still Funded the Deal! No documents signed, no authorization granted and Mr Realtor is calling me up because $82k was just wired into escrow! After making some calls and dealing with multiple people because we had not signed any documents and couldn’t afford to be saddled with two loans on one property, I discovered that that HML had pre-funded because their investor was going to be out of town for a month, and they wanted to make sure that we were going to close, they funded.
To say the least I was very impressed with their go-gettism. And I’ll keep them in the little black book of numbers to call. Of course we almost had to go back to them to close the deal because of the Villain who stars in: The Quest for Zavala. But we’ll get to that in future posts.