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what are the pitfalls in using a hard money lender for a short term flip?

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June 30 - Woodbridge
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wilmagosman

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Do you Understand what is happening in todays real estate market? foreclosures in the hundreds. because the peoples didnt look at the short term loan and believe it , im not sure what happen,<research the past five years first> but, if you do this you will be one of the statistics of people who take stupid bad loans...
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July 01
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sunnyview

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Don't hard money lenders break your thumbs if your flip fails? I like my thumbs so I would make sure that the flip was going to work or at least that Grandma had enough money to bail me out when the bank man came for his money.
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July 01
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James Ryan, "GreatRateFolks"

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Many of your answers are on track, but with a bit of refinement. FHA is 90 days, however, they can require 180 days and leave that up to the lender's underwriting department. FHA between 90 days and 180 days may ask for an explanation letter as to the reasons the property increased in value, so be prepared to discuss your "improvements". FNMA and Freddie allow it sooner, but do not allow for an increase in value unless supported by receipts and proof of substantial work being performed, an increase in value is only allowed after 6 months at some lenders, and one year from most FNMA or FREDDIE lenders. If your hard money loan is fixed for one year, and you are prepared for that one year under those terms, you should do ok, save the unknown of where interest rates will be after one year. That unknown could be substantial, as you probably know. I hope that helps shed a bit more light for you! Jim
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July 01
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Michael Russell, "real estate mike"

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Also f.h.a. has a 90 day wait(91 days in reality, no true flips) for f.h.a. buyers, which I believe is the dominant mortgage type now. This is an asinine rule which you can thank the government for. 30 days I could understand but 90 is ridiculus.
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June 30
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FriendshipProperties

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The pit falls are higher interest and points (which you learn to get used to), but also if you can't sell the property you'll need to get an extension or refinance.  If you can't do that, they foreclose and take the house.
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June 30
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Jimmy Mulhern, "jamulhern"

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Interest Rate, Points, and if you don't pay them back they break your legs!

Have a contingency plan in place if the original "short term" plan does not work out.  Otherwise...
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June 30
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Vicky Chrisner, "vchrisner"

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What if the flip doesn't work and you get stuck with the property?  Can you stick with the terms long term?  Probably not.  In a constantly and rapidly changing market, I caution you.  Not knowing the terms, that is the only advice I can offer "off the cuff".  Make sure your agent is helping you to compare all finance options available.

Best of luck!
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June 30
 

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