Posted by rm on August 08, 2003 at 21:25:43:
I just spoke to someone this week that has a construction-to-permanent product.
I’m out of town, so e-mail me on Monday and I’ll get you her contact info.
Hard money vs. prepayment penalty for rehab - Posted by Paula S.
Posted by Paula S. on August 03, 2003 at 11:06:34:
I have a bid on a property I plan to rehab and then sell. So turn around time is expected to be short. My choices are a hard money lender and paying the high points and rates. Or, is there any reason I can?t use a conventional loan and pay the prepayment penalty of 5% (for this particular lender) which will be considerably less than the costs of a hard money lender?
My mortgage broker says this lender will lend on appraised value rather than purchase price. I am buying the property at about 75% of as-is appraised value. We are dealing with fairly low figures (bid was $29,500) and I can finance most of the rehab myself. The after-repair value makes this a very attractive deal.
Would using the conventional lender and paying the prepayment be a sound plan? All you experienced rehabbers see any problems with it?
Thanks for your input!
Paula
Re: Hard money vs. prepayment penalty for rehab - Posted by Ryan
Posted by Ryan on August 05, 2003 at 09:07:01:
Paula,
Based on how low the loan amount is it might be best if you use your rehab money as a down payment. This way you can get a conventional 75% LTV loan with a good interest rate and no prepayment penalty. Then use credit cards to finance the rehab work. I would only do it this way if your confident about the rehab costs and the price you can get after you fix it up. This will give you biggest profit margin. I did a loan like this with Wells Fargo.
Re: Hard money vs. prepayment penalty for rehab - Posted by Jasonrei
Posted by Jasonrei on August 03, 2003 at 12:21:14:
I’ve never used conventional financing on rehabs, so I can’t speak from experience. I have used HMLs.
Your conventional loan is going to have up-front costs, too. I believe my HML costs (up-front) are lower than what I could get on conventional loans, if I qualified. Plus, my HML is quick. Your HML may be different. Still, if you factor in 6 mos. holding time, you might be better off with the conventional.
So, I think paying the prepayment penalty just might be a good plan. If you do the deal, please let us know which route you took, and what the numbers were.
Re: Hard money vs. prepayment penalty for rehab - Posted by comp6512
Posted by comp6512 on August 04, 2003 at 15:45:53:
“Conventional” lenders will not lend on a fix-up property, unless you intend to live there yourself, as an owner occupied property. Sincy you’re planning to fix and sell, trying to obtain a loan this way will constitute fraud. Besides, it will be next to impossible to find a lender to do a loan less than $50,000. You’d be better of with hard money.
Re: Hard money vs. prepayment penalty for rehab - Posted by Paula S.
Posted by Paula S. on August 04, 2003 at 17:43:50:
I think you’re right, comp6512. I am working with two mortgage brokers who thought they could get this loan for me and now it looks like they can’t. I’ll be calling the HML’s and also some local banks. I hear that quite ofter thet will do this type of loan.
Paula S.