A Northern California mortgage broker sent an email yesterday morning about hard money fix and flip financing:
Hard Money Fix & Flip Financing Pricing Guide
Are you a real estate investor or house flipper looking for better hard money fix and flip financing pricing on your next acquisition? Or, are you new to flipping houses and want to know what it costs for hard money fix and flip financing for your first project?
If so, you’ve come to the right place.
First Capital Trust Deeds knows hard money lending, especially fix and flip financing. Since 2013, FCTD has worked with numerous real estate investors and house flippers on their hard money fix and flip financing needs, securing loans from $100,000 up to $8,700,000.
This pricing guide will cover many different pricing aspects that go into hard money fix and flip financing, including:
- Interest Rates, Origination Points, Fees, & Costs
- Pricing for Purchase + Rehab Financing
- Additional Costs, Extension Fees, Fund Control, Inspection Fees, etc.
There is a lot to cover, so let’s get started!
“What’s your hard money fix and flip pricing?”
When new prospective borrowers call in, the first question they ask is, “What’s your hard money fix and flip pricing?”
Our answer usually is, “We’re at 2 points, 9.00% interest-only, and 80% Loan-To-Value (LTV) on a 12-month term, give or take. Let’s talk about your scenario to see if we have the terms that you’ve called in specifically looking for.”
Usually, upon discussing their scenario, we discover that they are either relatively inexperienced (0-2 successful flips) looking for 100% financing on the entire project because their liquidity is limited. Or, they are long-time house flippers with established relationships with a local hard money lender who gives them 95-100% financing on their projects but charges them 4 points at 13.00%, which has caused them to search the internet for lower-priced hard money fix and flip financing. Therefore, they’ve called FCTD to see if we could give them the same leverage of 95-100% LTV but at a much, much better price so they can see more profit. (See our article – Problems With 95-100% LTV Hard Money Financing – that covers the pros and cons of high-leverage, high-cost loans. Spoiler alert – FCTD doesn’t do 95-100% financing).
Since you came here to find out about pricing, let’s get right to FCTD’s hard money fix and flip financing pricing guide, looking at terms for three different borrower experience levels on a hypothetical flip scenario in a major urban or suburban market (not ex-urban or rural) with the following attributes:
- $500,000 Purchase Price
- $100,000 Rehab Costs
- $750,000 After Repair Value (ARV)
Borrower Experience Levels:
- 5+ flips per year (5+/yr)
- 2-4 flips per year (2-4/yr)
- 0-1 flips per year (0-1/yr)
Borrower A (5+/yr) could receive the best pricing at 1.50 Points, 8.25% interest-only, at 85% LTV on the purchase plus 100% rehab financing. That’s pretty good pricing!
Borrower B (2-4/yr) could get 2 Points, 9.00% interest-only, at 80% on the purchase plus 100% rehab financing. (This is the middle of the road answer we give when people call in asking what our fix and flip pricing is. “We’re at 2 points, 9.00% interest-only, and 80% Loan-To-Value (LTV) on a 12-month term, give or take.”
Borrower C (0-1/yr) would be at 3 points, 10.25% interest-only, at 75% on the purchase plus 100% rehab financing.
Below are descriptions of the additional closing costs and fees that go into FCTD’s hard money fix and flip loans:
- Appraisal Fee - $650: the lender will require an interior-exterior appraisal providing AS-IS Value and After Repair Value (ARV).
- Underwriting Fee - $995: sometimes this fee will be called “Underwriting, Processing, or Doc Prep,” which represents the lender charge to underwrite and/or draft loan docs.
- Rehab Inspection Fees - $600: when doing a fix and flip loan with rehab financing, FCTD works with the lender, borrower, and contractor to determine how many construction draws will be necessary. In this sample, there will be four draws of $25,000 each. Upon submitting a draw request from the borrower or general contractor, the lender will send an inspector to visit the property to verify that the draw request matches the work performed on the project. Borrowers pay upfront in the loan closing costs for the $150 inspection fees.
- General Contractor Review - $350: fix and flip lenders complete their due diligence on the general contractor by running background checks, verifying all license, bond, and insurance is in force and good standing.
- Extension Fees: We did not include an extension fee in the table above because extension fees only come into play when the loan reaches maturity, which is usually 12-months. The cost of extensions is different for each lender, ranging from 0.25% to 1.00% to extend the loan for 3-6 months.
In addition to the closing costs and fees, borrowers will be required to have the following items paid for prior to or through the close of escrow:
- Insurance: if the loan has a 12-month term, the lender will require that the hazard insurance policy be for 12-months and the 12-month premium be paid in full either before closing (paid invoice required) or paid through the close of escrow.
- Flood Insurance: every lender checks the FEMA flood maps to see if the subject property is in a flood zone. FCTD has had originated numerous loans, especially in Florida, on properties in flood zones. Flood policies must also be paid prior to closing or through the close of escrow.
- Title / Escrow / Taxes / Recording Fees: all transactions require title, escrow, taxes and recording fees.
Each hard money fix and flip loan has its own set of challenges and circumstances that can cause variations off the sample chart above. In some cases, for an “A” borrower, we may be able to get the interest rate down to 8.00% if they are buying the property at a 10% discount from AS-IS value. Or, if they are overpaying by 10% on the purchase, the interest rate may be 8.75% and the LTV on the purchase may be reduced 75%. This is why we tell people who call in that our pricing is “2 points, 9.00%, at 80% LTV – give or take.”
The FCTD loan team has extensive hard money lending experience with over 1,750 loans closed since 2013, securing fix and flip financing for projects big and small. We are happy to discuss hard money financing for your next project. If you have questions about what you read here or have a specific financing scenario to discuss, please request a consultation today.
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