1. What is a hard money loan?
Private money loans, also referred to as hard money loans, represent a family of loans where the capital comes from a private source. Such sources can include any sort of private entity, like individuals, private corporations, and partnerships.
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?
Bank loans, or conventional loans, place most importance on a potential borrowers income and credit history.
The most weight, in a hard money or private money loan scenario, is assigned to the value of the equity available in the property being consideration for financing. This is not to say that credit history and income documentation are not considered in a hard money loan application. Nothing could be further from the truth. The issue is simply the overall weight give to different criteria.
In California (this may very state to state), the instrument by which a borrower pledges their property as collateral is called the Trust Deed.
It is the size of this collateral, pledged by use of the Trust Deed, that forms the biggest distinction between conventional bank loans and private money financing. The private money lender will require that there will be substantially higher collateral than federally underwritten banks.
3. Are commercial properties and residential properties both eligible for hard money loans?
Yes! You can use hard money or private loans for residential homes or commercial property.
Commercial real estate is a very different animal from residential real estate. How the overall value and the resulting equity is determined in a commercial property is different than how they are determined in a residential property. However, the steps in processing a hard money loan are very similar for both classes of real estate.
4. I have a bad credit history. Will I be able to qualify for a hard money loan in California?
In the majority of cases where borrowers have credit histories that are less than stellar, this fact alone will not prohibit the availability of private financing. Having said this, almost all private lenders will look at the reports of your credit history.
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. Hard Money Loans: Are there a variety of different types of loans?
Yes! There are different loans for different borrowers needs. There are hard money loans for cashing out on residential properties, rehab SFR loans, commercial loans, commercial rehab, construction, land and various private money loans for acquisition.
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. How much does San Diego hard money cost?
There really is no set answer for this question. The interest rate will differ from deal to deal. To illustrate this, commercial rates are often different from residential rates from the same lender.
Normally, interest rates can be as little as 9% all the way up to 16%. Factors that can impact private money interest rates include term length, the borrowers credit risk, lien position of the lender, and the condition of the property.
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 loan term will typically depend on the investor or funding entity. Generally speaking, the loan terms for private and hard money are short in duration. Anywhere from 1-5 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. - 29971
Private money loans, also referred to as hard money loans, represent a family of loans where the capital comes from a private source. Such sources can include any sort of private entity, like individuals, private corporations, and partnerships.
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?
Bank loans, or conventional loans, place most importance on a potential borrowers income and credit history.
The most weight, in a hard money or private money loan scenario, is assigned to the value of the equity available in the property being consideration for financing. This is not to say that credit history and income documentation are not considered in a hard money loan application. Nothing could be further from the truth. The issue is simply the overall weight give to different criteria.
In California (this may very state to state), the instrument by which a borrower pledges their property as collateral is called the Trust Deed.
It is the size of this collateral, pledged by use of the Trust Deed, that forms the biggest distinction between conventional bank loans and private money financing. The private money lender will require that there will be substantially higher collateral than federally underwritten banks.
3. Are commercial properties and residential properties both eligible for hard money loans?
Yes! You can use hard money or private loans for residential homes or commercial property.
Commercial real estate is a very different animal from residential real estate. How the overall value and the resulting equity is determined in a commercial property is different than how they are determined in a residential property. However, the steps in processing a hard money loan are very similar for both classes of real estate.
4. I have a bad credit history. Will I be able to qualify for a hard money loan in California?
In the majority of cases where borrowers have credit histories that are less than stellar, this fact alone will not prohibit the availability of private financing. Having said this, almost all private lenders will look at the reports of your credit history.
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. Hard Money Loans: Are there a variety of different types of loans?
Yes! There are different loans for different borrowers needs. There are hard money loans for cashing out on residential properties, rehab SFR loans, commercial loans, commercial rehab, construction, land and various private money loans for acquisition.
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. How much does San Diego hard money cost?
There really is no set answer for this question. The interest rate will differ from deal to deal. To illustrate this, commercial rates are often different from residential rates from the same lender.
Normally, interest rates can be as little as 9% all the way up to 16%. Factors that can impact private money interest rates include term length, the borrowers credit risk, lien position of the lender, and the condition of the property.
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 loan term will typically depend on the investor or funding entity. Generally speaking, the loan terms for private and hard money are short in duration. Anywhere from 1-5 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. - 29971
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