At our last Meetup, I was joined by Gabe and Tom, private money lenders. Here are some of their top tips for private money borrowers.

In the second installment of our Fix and Flip Financing Basics blog series, our experts dive deeper into the private lending process. If you missed the first blog, check out Fix and Flip Financing: Private Money Loan Basics, Part 1 for the full story.

Tom, Once I pre-qualify and select a property, how does the lending process work?

Tom – Pre-qualifications vary. You must pre-qualify and get quotes for the chosen property (pre-qualification based on general questions – credit, liquidity, personal or LLC, experience). Lenders then collect all required documents such as operating agreement (if you have an LLC), bank statements, credit report and proof of experience.

Borrowers usually need to submit a budget and scope of work for an appraiser to determine the ARV. After an appraisal is ordered by the borrower, the closing process continues as normal.

What are the typical rates, fees and terms for fix and flip lenders?

Tom – Rate and fees depend on the speed of the lenders. The faster closing lenders are more expensive. Keep these basics in mind:

  • Private money lending incurs a 2% origination fee. This means that 1-3 origination points will be used at closing. Points are a percentage of the loan that is charged as an origination fee. In some cases, points can be exchanged for interest.
     
  • 7-12% interest rate on the loan depending on credit score.
     
  • The other fees will include the appraisal fee, application fee (sometimes depending on the scope of work), processing fee and a draw fee where the buyer draws money out of escrow for down payment.  This fee is payment for processing the withdrawal.

Missed out on the March Fix and Flip Meetup? No worries! More information about fix and flip financing is still to come. Follow us on Twitter to see when we release the next set of questions.