1. Just what is a San Diego hard money loan?
Hard money loans, a.k.a. private money, are a type of loan funded by a private entity. This could be an individual, partnership or institution.
Unlike conventional loans from banks, where loan to value ratios can be as high as 97% (in the case of FHA financing), the LTV of hard money loans can be significantly lower, say 55-75%. This affords the private money investor with more security in the form of equity in the underlying property.
2. How does it differ from a conventional/bank loan?
Conventional loans also know as bank loans are unwritten or evaluated by placing a significant emphasis on the borrower’s income and the borrowers credit history.
Although both aspects of the loan application are considered when doing a San Diego hard money loan, more emphasis is placed on the underlying piece of real estate that is pledged as collateral.
In California (this may very state to state), the instrument by which a borrower pledges their property as collateral is called the Trust Deed.
The primary difference between bank loans and hard money or private loans is that the lender requires a larger equity position as collateral in San Diego hard money loans.
3. Are hard money loans available on commercial and residential real estate?
You better believe it. It is common to attain private money financing for a variety of commercial and residential property types. In fact properties that do not qualify for conventional financing due to being non-conforming are often successful in qualifying for hard money loans.
The procedures of doing the loan are similar but the concepts regarding the value and equity vary significantly between commercial and residential property.
4. I have a bad credit history. Will I be able to qualify for a hard money loan in California?
Most often, yes! As mentioned earlier, private money lenders still need to look at your credit report regardless of the project.
There are basically two reasons for this. First, they need to determine how much debt you are managing on a monthly basis.
Second, they need to determine how you have managed your credit in the past and what type of risk they need to associate with this.
Most often if the other parts of your profile are strong you may still be eligible for a loan.
5. Does the phrase, hard money loan, describe more than one financing scenario?
Absolutely! Since the needs of borrowers vary, there are types of loans to fit each borrowers situation. Residential rehab loans, loans for cashing out single family residences, rehab commercial loans, commercial loans, vacant land loans, construction loans, and acquisition loans are all common types of San Diego hard money loans.
6. If I need a hard money loan in San Diego, CA, what information will the lender ask for?
The information required to underwrite a private money loan will vary depending on whether the property is question is residential real estate or commercial real estate.
A hard money lender underwriting residential real estate will usually ask for 1-2 years tax records, the last two month bank statements, a current appraisal, a completed application, and a three bureau credit report.
Documentation for a commercial property includes an application, an executive summary, a pro forma, an appraisal, each principals financial statements, and at least two years of income statements.
7. What is the interest rate on hard money?
Interest rates on San Diego hard money will vary according to the type of the transaction, the terms of the transaction, and the type of real estate financed.
Interest rates in the range from 10% to 15% are not uncommon. The interest rate a particular private lender charges will depend on the repayment terms of the loan, credit history, whether the loan will be senior or junior, and the condition of the improvements.
8. What type of loan can I request?
San Diego hard money loans can be made fully amortized, as well as interest only, balloon loans.
9. What type of loan term will I have?
The length of loan terms for private money loans are normally not as long as conventional loans. Every hard money lender will be different. Typical San Diego hard money loans are made from anywhere from one to five years.
10. Will I have a prepayment penalty?
Again this will depend on the funding entity, but you usually can request loan terms without prepayment penalties.
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