10 Common Questions About San Diego Hard Money

1. What is a private money loan?

A hard money loan, also known as private money, is a loan that is funded by a private individual, entity, or institution.

They are typically secured by a strong equity position in the underlying piece of real estate used as collateral. They are usually written with a low loan-to-value (LTV).

2. What is the difference between a hard money loan and a bank loan?

Bank loans, or conventional loans, place most importance on a potential borrowers income and credit history.

A borrowers income and credit history are still important considerations in creating a hard money loan. However, the most weight is given to the collateral, which is the equity in the underlying real estate.

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 biggest distinction between conventional loans and hard money loans is the equity position required as collateral by the lender. In hard/private money loans equity position of the borrower may be as high as 15-40%.

3. Are commercial properties and residential properties both eligible for hard money loans?

Absolutely! Hard money can be used for any type real estate: single family homes, land, apartments, industrial buildings, office buildings, and retail stores.

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. Am I able to borrow California hard money if I have a bad credit score?

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.

Another reason a San Diego hard money lender will consider your credit history is to determine risk. This is similar to the purpose of a credit report review by a conventional lender. However, the private lender will give less overall weight to this consideration.

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?

Commercial loans for purchase and renovation, scheduled new construction loans, single family loans for refinancing and rehabilitation, and raw land acquisition loans are just a small sampling of the scenarios where San Diego hard money can be used.

6. What will I need to give to my California hard money lender if I want to apply for private money loan?

There are two sides to this question. This is due to the different documentation required by residential loans and commercial loans.

Documentation for a residence includes an application, at least two years of income statements, a credit report, an appraisal report, and current bank records.

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.

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 kinds of loan repayment schedules are available with hard money?

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. Do San Diego hard money investors charge penalties for pre-payment?

Each investor is different and each investor's terms will vary from transaction to transaction. When applying for any loan it is a good idea to inquire about eliminating a pre-payment penalty from your loan terms.

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