Mind Your Money: How To Get A Loan To Fix And Flip A House
If you've ever dreamt of building financial wealth through real estate by flipping homes, you may already know that it isn't as easy as your favorite DIYers make it look on tv. Still, since you've always known that achieving your goals wouldn't be a cakewalk, you are ready to forge ahead. You may have even already picked out a fixer-upper that you can renovate, but you will need funding to make it happen. Enter a hard money lender who could loan you the funds to complete your purchase.
To better understand how to find one and how the process works, we sat down with private investor Ejiro Ajueyitsi, owner of Brooklyn Funding Group for tips. His company helps clients with funding nationwide.
BET.com: What does it mean to be a hard money lender?
Ejiro Ajueyitsi: It's private investment capital, meaning we're not the traditional conventional FHA (Federal Housing Administration) bank. We're people that look at things other than your taxes and your income on your paystubs. We're private investors, so we can set our guidelines as we see fit—obviously within reason as we need to protect our capital.
A typical hard lender lends without requiring the borrower to provide extensive income documentation. We provide money for people to purchase property, fix it or flip it or purchase a property and rent it out.
BET.com: Would you also lend money to someone purchasing a home to live in?
Ajueyitsi:It would be for somebody who may not have a first home but might want to live in the house and rent a room to make some money and use the proceeds to buy their home. Certain people might just want to stay in the apartment that they're renting and buy a two-family and let that build some money for them until they're ready to buy a forever home.
BET.com: Do hard money loans work the same as a typical mortgage?
Ajueyitsi:It is different, a fix and flip loan is a temporary loan. If I loan a client $100,000 and they have 12 months to complete their project, they don't have to pay me back until they sell the house. So if they sell the home for $300,000, they have $200,000 after paying me back.
There are different ways to make their payments. It might be interest-only payments for the life of the loan, which in this example is 12 months. Suppose a person gets a rental loan where they're putting renters in it. In that case, the loan operates almost identically to a conventional FHA loan without the traditional FHA guidelines. The only difference is that they're putting more money down. There might be a 20% down payment. But we're not asking for a debt to income ratio.
BET.com: What is the criteria for a potential borrower?
Ajueyitsi: In cases of long-term loans, I look for a credit score between 620 and 640 and the last five years without bankruptcies or foreclosures. Also, you must pass a background check, and it doesn't mean that just because you have a past, we're not going to lend to you. It just [lets me know if there have been] financial crimes. Then lastly, there is an income check.
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BET.com: Are the interest rates the same for hard money loans as conventional mortgage loans?
Ajueyitsi: It's very different, but it's been consistent. Over the last five years, it hasn't fluctuated much, a six-month loan is typically 10%, and it's been that way, maybe even for the last 15 years. It's been pretty stationary. The only thing that's fluctuated is those long-term loans we give out that closely mirror conventional or FHA rates.
BET.com: How can someone pick the right hard money lender?
Ajueyitsi: Check reviews.
BET.com: Why did you become a money lender?
Ajueyitsi: I started a private funding group because I didn't see people like me. I'm trying to get people to see that things that seem unattainable, like managing or starting a hedge fund which is the next step for us, are attainable. Maybe [when I started out] if I saw people who look like me, there would be 30 or 40 Brooklyn Funding Groups out there right now, [I am the only known Black hard money lender] nationally that offers direct lending for fix and flips mortgages and long-term real estate investments. I'm trying to create a movement of people that can look at me and think, 'if he could do it, I can do it.'
*Editor’s note: This interview has been edited and condensed for clarity.
