Auction.com & Hubzu
Hard Money Loans

What is Auction.com and Hubzu?

Chances are, if you’re researching hard money financing for Auction.com and Hubzu purchases, you’ve been on their websites and know how the process works. If you haven’t, here’s a quick overview of the service(s) they provide.

Both websites offer an online auction where banks and asset managers can place their REO and short sale properties for sale. Buyers place their bids, setting parameters for each property they’re bidding on. If they win the bid, the buyer goes into contract with 15-30 days to close and take possession of the property. Some listings may say “cash offers only,” which usually means all cash or hard money financing is accepted. That would indicate that the property has significant deferred maintenance or is in need of major repairs, which makes the property ineligible for long-term conventional financing. This is where hard money comes in.

Purchasing a Property With Hard Money Financing

If you’re buying a property to fix and flip, or renovate to keep as a long-term rental, you may need to use a hard money loan. As I mentioned above, some properties are in decline and need expansive repairs, so hard money is the right path if you’re using leverage to finance your purchase.

Auction.com and Hubzu charge the buyer a fee to purchase properties through their site, usually found as a line item on the closing statement. Most hard money loans won’t finance the buyer’s fee, so be prepared to pay that directly.

Loan Programs for Auction.com and Hubzu Purchases

There are a number of loan programs available to finance your purchase of an Auction.com or Hubzu property. The loan program depends on your intentions for the property – is it a fix-and-flip, rental or your new primary residence?

Bridge Loans

Hard money bridge loans can be used to quickly acquire an investment property. FCTD originates 300+ bridge loans each year for investors who are purchasing a fixer-upper or vacant property, or pulling cash out of an existing property to make upgrades prior to listing for sale.

Bridge loans are ideal if the property you’re buying on Auction.com or Hubzu is listed as “cash only,” which means, “cash, or financed with hard money.” This allows you to acquire the property and pay for renovations out-of-pocket before selling or refinancing into a long-term mortgage.

Bridge Loan Terms and Pricing

Terms and pricing for bridge loans vary depending on borrower experience, credit score liquidity, purchase price, property condition, location exit strategy, and other factors. Since FCTD is a mortgage broker, we have several capital sources to place with the borrower, depending on the loan specifics.

• Loan Amount: $150,000 to $10,000,000
• Interest Rate: 9.99% to 13.00%
• Term: 6-24 months
• Loan-To-Value (LTV): 65-70%
• Closing Costs: 2-3 points

Low-LTV loans at 25% will cost less than those at 75% LTV. FCTD’s capital sources prefer metro area real estate over rural properties. The LTV on rural properties is sometimes limited to 50%.

Fix-and-Flip Loans

Fix & flip hard money loans provide private financing plus rehab funds for investors in the business of buying and selling homes. Fix-and-flip loans are high-leverage bridge loans with a construction component to finance property renovations and repairs.

Fix-and-Flip Terms and Pricing

Fix-and-flip loans extend to 80-85% LTV on the property purchase, and cover 100% of the rehab funding. The most experienced house flippers can qualify for 85% LTV on the purchase. First-time house flippers should expect 70% LTV on the purchase and 100% on the rehab.

• Loan Amount: $150,000 to $3,000,000
• Interest Rate: 9.99% to 13.00%
• Term: 6-24 months
• Purchase LTV: up to 80-85%
• Closing Costs: 2-3 points

Rental Property Loans

If an Auction.com or Hubzu listing is in good condition and qualifies for bank financing, an investor may want to use a conventional rental property loan instead of a hard money bridge loan. FCTD finances rental properties using three different types of lenders:

Conforming Loans

Borrowers will need to qualify with their W2, paystubs, tax returns, and other financial documentation. Conforming loans have the best pricing – but also the most rigorous underwriting standards. Well-qualified buyers should try a conforming loan first, followed by a DSCR and bank portfolio as backup financing options.

Debt Service Coverage Ratio (DSCR) Loans

DSCR loans primarily factor the ratio of the property’s cash flow to its expenses to qualify for financing. If the rent is $3,000/mo and the monthly debt service is $2,500/mo, it qualifies. DSCR lenders also factor the loan amount, LTV, credit score and borrower’s liquidity into the approval process. Most DSCR lenders cap the LTV at 75-80%.

Bank Portfolio loans

FCTD works with a few banks that retain the mortgages in their portfolio, called a bank portfolio. Portfolio loans offer a little more flexibility but will limit leverage to 65% LTV. They have great programs for larger loan amounts on high-end rental properties. Most portfolio loans are limited to 5 to 7-year Adjustable Rate Mortgages (ARM).

Cross-Collateral Blanket Loans

For experienced investors with several investment properties who want their cash on hand rather than toward a down payment, FCTD can get creative with cross-collateral blanket loans. Cross-collateral is simply securing one loan through two or more properties. A buyer who crosses their equity in multiple properties has the flexibility to purchase a property with little money down.

Owner-Occupied Loans

I’ve received several calls over the years from people who want to buy their primary residence through Auction.com or Hubzu using an owner-occupied hard money bridge loan.

It’s technically possible – but not likely to happen.

An owner-occupied loan is considered a consumer purpose loan. Investment property loans are considered business purpose loans. About 95% of hard money lenders will only originate business purpose loans. There is very little owner-occupied hard money funding available.

If you want to buy your next primary residence through an online auction website, you’ll need to use a conventional mortgage rather than an owner-occupied hard money loan. Hard money loans are meant to be used by real estate investors, not consumers financing their primary residence.

Hard Money Loan Requirements

To purchase a property through Auction.com or Hubzu with a hard money loan, you’ll need to submit the following items:

• Application
• Borrower’s Authorization
• Bank Statements: two most recent months (source of down payment funds)
• Photo ID (front & back)
• Entity Documents: Articles, Operating Agreement & EIN
• Purchase Agreement
• Extensions
• Earnest Money Deposit
• Budget - if requesting renovation financing
• Exit Strategy: sell or refinance? Timeline?

Conclusion

Auction.com and Hubzu are two popular portals to find and purchase lender-owned property online. Because many of the listings have deferred maintenance, they aren’t fundable through traditional means. Hard money lending – be it bridge, fix-and-flip, rental or cross-collateral loans – can be a great alternative to quickly and successfully acquire such properties.

At FCTD, we’re very comfortable facilitating loans for Auction.com and Hubzu purchases. With our expertise, you can be confident in a faster, more seamless experience acquiring your next investment on these online portals.

Connect with us today about your next real estate investment through Auction.com and Hubzu.