Hard Money Lending

The ALPHAbet. ABC’s of Hard Money

Getting started in the real estate investment world can be intimidating. Real estate investment tips for beginners are scattered across the internet in various forms. Understanding hard money and the lending process is just one piece of the puzzle.

Use this list to get started. The ALPHAbet has everything you need to know about working with Alpha Funding Solutions as your capital partner.

A: ARV

Loans are based on the After Repair Value of the property. Our primary fix & flip loan offers 90% of the purchase price, 100% of the rehab costs *up to* 65% of the ARV. (70% can be discussed on a case-by-case basis)

ARV is determined by full appraisal.

B: Borrower Interview

It is our intention that each decision we make is made from a holistic perspective, which is why a borrower interview is conducted as a part of the approval process. We take a consultative approach when building a loan that is right for each investor and each deal.

C: Credit Report

There are certain credit minimums required on each loan that we offer, all of which are in the 600’s and range from 600 to 640 depending on the situation. However, when looking at a credit report, our underwriting team is seeking to understand why the credit score is what it is. Looking at the report holistically, helps us to understand each borrower individually.

D: Draws

After the initial fund, the construction money is put into a reserve (where it does NOT collect interest). Upon completion of the first phase of construction, the borrower will submit for a draw of the funds. The work is then inspected and approved, at which time Alpha will wire that portion of the construction money to the borrower. We do not have a minimum draw requirement.

E: Exit strategy

Knowing the exit strategy up front is helpful for the underwriters as well as for the borrower. If the borrower’s plan is to sell the house on the back end, it is helpful to have a buyer or a realtor lined up prepared to list the property. If they are planning to hold the property for rental purposes, it is essential to have a refinance plan.

F: Full Application

Our application is three short sections: A personal financial statement, a deal summary, and a credit and background waiver. When submitting the application, double check that all signature boxes and the personal financial statement are complete. We can not move forward with processing if the application lacks information.

G: Guarantors

While we only lend to LLCs, each borrower on the LLC becomes a personal guarantor on the loan. If there are two or three partners, each partner must complete a personal financial statement as well as a credit/background waiver.

H: Holding “buy and hold”

Our buy and hold program is essentially the same as our fix & flip program. The key difference is the exit strategy. If the borrower is planning to refinance the loan into a more conventional mortgage, we will want to make sure they are in a position to do so based on the requirements of the take out lender.

I: Interest rates

Our interest rates range from 9-12%, typically falling in the 10-11% range. Interest is only charged on the capital as it is deployed via the draws. Any money sitting in reserve does not collect interest. During the length of the loan, borrowers pay monthly interest payments according to principal balance.

J: Joint venture

If a borrower is lacking in a certain area such as experience or finances, a great way to get into the investment business is through a joint venture. Find a partner that could benefit from what it is that you do bring to the table. Go in on a project together to get the ball rolling.

K: Know your market

One of the biggest mistakes new investors make is overpricing their finished property on the MLS. Understanding the local market, researching comps and pricing accordingly, and knowing the buyer market you are targeting are all keys to successfully flipping a property. The more you know up front, the more leverage you have when completing a deal from start to finish. Knowledge is power.

L: Licensed contractors

One question we get asked all the time is “can I complete the work myself?” If the work is cosmetic, yes you can complete cosmetic work on your own. However, if the work is beyond a paint job and carpets, you will need to hire appropriately licensed contractors for the job. Networking with other investors and those in the industry is a great way to find credible contractors.

M: Minimum downpayment

For our fix and flip loans, we look for at a minimum 10% down payment.

N: No prepayment penalties

Our loans are termed to 12 months however if you want to pay off the loan in 3, 6, or 9 months, there is no penalty in doing so.

O: Origination points

Each loan has minimum 2 origination points attached to it that is collected at closing. 2 points = 2% of the total loan amount.

P: PreApproval / POF

An investor has the opportunity to get pre approved with Alpha. If there is not a deal at hand yet, investors are invited to fill out the personal financial statement and the credit waiver. Those two in combination with the borrower interview will streamline the process once a property does come up. Once the pre-approval process is complete, any time the investor needs a proof of funds letter, we can offer that at no charge.

Q: QPA

The easiest way to get a deal in front of the Alpha team is to submit a quick pre-approval via our website. A few details about the project gives us the opportunity to vet the deal from a high level and determine if it’s something we should get over to the underwriting team. Within 24 hours of submitting a quick pre approval, investors will receive a phone call from a dedicated member of the Alpha sales team.

R: Rehab budget

Having an accurate rehab budget will help smooth the draw process. Once you’ve completed the work and it is inspected, our in-house construction manager will compare the rehab budget to the work completed for approval prior to wiring the construction funds. Getting contractor quotes, having a plan and sticking to the plan will help make it a seamless process.

S: Seasoning

We do not require you to be in our loan for any amount of time. You can exit the loan and pay it off at any time within the 12 month period.

T: Terms

All of our loans are termed to 12 months during which borrowers pay only interest payments. The loan is paid off in a balloon payment at the end of the term.

U: Underwriting

Upon submission of your application, our in-house underwriting team will conduct a borrower interview. During this interview, they want to know the nitty-gritty of the project including how much money the borrower is asking for, what their plans for the money are, how they are acquiring the property, the exit strategy and several other key topics. The more information brought to the table for the underwriting call, the better.

V: Value add of a team

Working with a team that understands the industry as a whole as well as the local market is a key to success in the investment industry. Building a solid team from your lender to your realtor, your contractors to your home stager, and beyond is.

W: Wholesale

For an investor looking for properties building a good relationship with a wholesaler is a strategic way to get quality properties put in front of you. There are countless other ways to find properties including searching the MLS websites, driving for dollars, mailing flyers, and more.

X: Experience

Alpha does not require any prior experience to enter into a loan. We look to see if you have the knowledge and the resources to complete the project, however we do not ask that you have completed a project in the past.

Y: Yield

Before you spend a year of your time investing in a property, it is important to get a good handle on the “yield” or the profitability of the project. When an investor brings a deal to Alpha for options, we are able to stress test the deals and offer insight on how much profit is available to be made based on a 6, 9, or 12 month project.

Z: Zippy closings

From point A to closing table, typically takes approximately 10 business days. We’ve been known to close in as little as 3 or 4 days if all proper documentation is available including Title and corporate docs. However, under normal circumstances, we can close on a loan under that two week mark from the time the application is submitted.