Fix & Hold Loans
Merchant Mortgage & Trust Corporation (MMTC) offers an innovative way to assist fix-and-hold real estate investors with their desire to build rental portfolios with little to no cash out of pocket. With traditional mortgage loans on non-owner occupied investment property, lenders often require 25 percent down, do not allow funds to be used towards improvements and may take weeks to close. Not to mention, the property must already be in a rentable condition.
MMTC’s alternative hard money loans, and more specifically in this case, a fix and hold loan is a popular alternative to traditional loans and has been a successful offering to investors for many years.
How Do Fix & Hold Loans Work?
As a potential borrower, note that all situations are fairly unique, so talking with a loan officer will give you insight into your specific situation. Here is a rough idea of what to expect.
- Speak with a MMTC lender outlining your needs.
- Apply using our online loan application and provide requested documents.
- Your loan officer will keep you informed regarding the status of your application and the next steps if your request is approved.
- As things proceed, if qualified, MMTC will fund the acquisition and fix-and-hold loan .
- We typically require a downpayment of 10%of the purchase price plus repair amount at the time of property purchase and loan closing. MMTC’s origination fee and standard closing costs are payable at the time of closing as well
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What are the benefits of a Fix & Hold Loan?
This loan starts off as a fix-and-flip loan, and upon completion of repairs to the property, the client refinances, subject to lender qualifications, into long-term financing with the lender of their choice to hold the property as a rental. That is when it becomes a fix-and-hold loan. Here are a few situations to help explain the process and benefits.
- With the fix-and-hold loan, the investor will have less of their cash tied up in the property if they do these two steps, fix-and-flip to permanent financing, as opposed to just getting a conventional loan from the start. This helps the investor conserve their cash and use that to purchase more properties.
- With long-term conventional financing, an investor will typically need to put 20 to 25% down and will typically not get any funds lent to repair the property. If they use our fix-and-flip loan, subject to qualification, they will only have to put 10% down and also get 90% of the repairs funded as well. Seems like a win, win, doesn’t it?
- MMTC can also fund our unique “down payment reserve account” whereby we lend our borrowers funds against their downpayment and hold their down payment in escrow. This allows us to record our loan amount as 100 percent of the purchase price plus 100% of the repairs. The potential (but not guaranteed) benefit of this is discussed in 4.
- Then, when the investor refinances, subject to qualifications, the refinancing lender will be refinancing based off of the new appraised value. If the appraised value is sufficient to cover 100% of the original purchase price plus 100% of the repairs, the Merchants Mortgage loan will get paid off by the refinancing lender, and the client will then have 0% down in the transaction as opposed to having 20 to 25% down PLUS repair costs out of their own pocket. MMTC can not guarantee, however, that the refinancing lender will be able to refinance 100% of the purchase price plus 100% of the repairs, so the downpayment reserve may need to be credited to pay down MMTC’s loan.
- At MMTC, we can close much faster than traditional financing (typically within 7 days), so we can help purchase a fix-and-hold property quickly. This allows the borrow to get the loan, then refinance shortly after, subject to qualifications, as opposed to losing the transaction by waiting weeks to close on a conventional loan purchase.
- MMTC can lend on fix-and-hold properties that are not in currently rentable conditions where as a conventional lender will not until provide a loan until the building is repaired and in rentable condition.
These are all great benefits, here’s an example of what that looks like:
Example: If an investor buys a fix-and-hold property and the purchase price is $300,000, the repairs are $30,000 and they use a MMTC loan, the down payment would be $33,000 (10%). If the borrower goes the traditional route and does a conventional purchase, they will need to put 25% down and no repairs funded, meaning they would have to put down $75,000 (25%) + $30,000 for the repairs, totaling $105,000. $33,000 verse $105,000, that’s a big difference.
- Loan Amounts: range 75,000-2,000,000
- Percent of payment down: 10% subject to qualification
- Terms: Subject to underwriting and may change or vary depending on the transaction. Commonly, the interest rate is 10% fixed, interest only with a monthly payment. The origination fee is 2 to 2.25%. No prepayment penalty. 6 Month loan term with an automatic 6 month extension with applicable extension fee. The extension fee beginning in month 7 is the loan amount times .0033 per month and any accrued extension fees, if applicable, are added on to the payoff of the loan.
- Property Types: Single-family residences, Townhomes, Condominiums (may require 20% down payment), Multi-Family Residences