This property is the third property my client, Mike, brought to me. I initially pre-approved him in July and he took his time making a calculated decision to put an offer on this property and move quickly.
Mike is a first time investor, he converted his primary residence into a rental property and make a cross country move seeking better weather and choosing Florida because of the landlord friendly laws.
This property started out with little issue. The borrower was well qualified and we entered into underwriting quickly. When we received the appraisal the condition came back in “C5” condition. Few if any lenders extend finance for C5 or C6 condition homes (C1 is new construction. C2 and C3 condition is a newly renovated home. Your average home usually is in C4 condition).
Luckily we have a “Fix and Flip” program that is a short term loan that will give the borrower some extra cash to use to rehab or “fix” up the property. One the property is in rent ready shape (C1-C4 condition typically) we can now put them into a long term mortgage loan.
Unluckily, we were not able to get this loan approved. The requirements for a fix/flip loan are more strict the less experience the borrower has. My client at the time did not have any investor experience. That means the property has to appraise at a before (as-is value) and After Renovated (ARV) Value.
The as is value came in higher than expected. But the after renovated value was $210,000. We needed this value to be at least $240,000 for the deal to work.
Back to square one.
Mike did not want to walk away from the deal. So we had only one option:
Hard money.
I work with a hard money lender that is located in Florida. He works quickly and this time was no different. We submitted the original appraisal, ID, insurance quote, taxes, and a clean title.
The lender sent closing documents 2 days later. The entire process took 5 business days from origination to funding.
The good thing is the borrower didn’t have to walk out on the deal. The bad thing is hard money is a short term fix. We’ll have to wait six months and get him into a long term solution.
From my point of view it is another transaction, which means more money for me. But from the borrower’s point of view it is a necessary step to get the property at an additional cost.
Normally, I would want to skip this step, because that is what is best for the borrower. But the choices came down to: walk away and lose the money already invested, or pay a bit more to get complete this deal.
This borrower has given me more business as well. I am trustworthy to some (take note Karen!). I held the borrower’s hand through the twists and turns of the transaction and I was up front with what the options were turning out to be.
I am thankful the borrower stuck with me because I have had others think I am trying to take them for a ride only for them to go somewhere else, only for them to come back on another transaction explaining they walked away from the original transaction after working with other lenders.
TL:DR
Borrower bought a house that needed more work than what the lender could lend on, and we were able to pivot to close the transaction with a hard money lender.
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