You've been wanting to get into the fix and flip game for a while. The idea got into your head after watching a few seasons of "Fixer Upper." And then, just last week you saw the perfect fix and flip project.
But as you look at rotting wood siding and cracked porch floor you wonder, "Would hard money lenders fund a project like this? And just what do hard money lenders look at when they're considering a project anyway?"
If you've got the perfect fix and flip project in mind but want to know what hard money lenders consider before funding a project, read on.
A lot of hard money lenders look at what the house will be worth after renovations are complete.
Before we get into the specifics of what hard money lenders look at, lets first go over loan-to-value and after renovation value.
In basic terms, loan-to-value (LTV) means how much of a down payment you're putting towards the loan versus how much you're borrowing. Hard money lenders (and most lenders, actually) use this to calculate how risky the loan is.
To give a clear example, suppose you want buy a house with a typical 15- to 30-year mortgage. The house you want is valued at around $100,000. You're putting $20,000 down. To calculate the risk of this loan you take 80,000 and divide it by 100,000.
80,000 / 100,000 = 0.8
The risk is 80%. However, since you're doing a hard money loan the situation is a little different. Instead of valuing the property at what it's currently worth, hard money lenders use ARV.
LTV means how much of a down payment you're putting towards the loan versus how much you're borrowing.
So what is ARV? It stands for After-Renovation Value. It's what the home will be worth after it's been renovated. Many hard money lenders use ARV to calculate risk.
They do this because if they used the current value of the home, you wouldn't get much for renovations. Here's a quick example of what a hard money loan might look like:
Let's say the ARV of the home you want to flip is around $100,000. Because there's a little more risk involved with a hard money loan, hard money lenders might only lend you $65,000. That's enough to buy the property and get renovations started.
While credit is not the only thing hard money lenders look at, it's still important.
"Okay," you might be thinking. "But what criteria do hard money lenders look at?" There are six things hard money lenders evaluate when considering a property.
If you’re interested in hard money lenders and want to know more, look no further than Gauntlet Funding.
Gauntlet Funding offers the most competitive rates in the market for prime borrowers with no prepayment penalties. We have an organized and transparent system that will get you funded fast once you have undergone the approval process! Contact Gauntlet Funding today at (631) 465-2161.
What Hard Money Lenders Consider with Loans| Gauntlet Funding – Melville