Hard Money Loans California
Most home buyers are familiar with traditional mortgages as sources of borrowed money for the purchase of a home. There are, however, other sources of money for those who need a quick way to bridge a financial gap that may occur when purchasing a new home. This is particularly true for the purchase of homes that require immediate renovations or repairs. In these cases, traditional mortgage lenders, such as banks or credit unions, will typically refuse to lend money for the purpose of renovations. If repairs or improvements require amounts that equal a significant portion of the selling price of the home, such transactions will often call for a hard money loan.
What is a California hard money loan?
A hard money loan is a short-term loan, usually with higher interest rates, that is designed to allow the borrower to quickly and easily get the cash in hand that they need to meet their short-term goals. It is a form of secured debt, meaning that an asset, usually a home, will be used as collateral. In the event the loan is not repaid according to the terms, the lender will have the right to take possession of the home and sell it at auction to recoup the principal amount of the loan as well as fees and interest.
Hard money loans can be a great source of funds for those who are interested in securing cash quickly that will be used for purposes not normally covered by traditional mortgages. Real estate investors who are primarily involved in fixing and flipping properties are some of the largest users of hard money loans. But other types of buyers may benefit from these loans as well.
In fact, hard money loans can be used by any property owner as a source of quick funds in the case of emergencies or unexpected costs. It is crucial, however, that the loan can be paid back quickly as the rates for hard money loans are often significantly higher than those for more traditional loan types.
What are the benefits of California hard money loans?
Hard money loans have a number of benefits that make them attractive to certain borrowers. These include the ability to access large amounts of money with poor or no credit, the ability to get cash in hand incredibly fast, sometimes on the same day, and being able to raise capital for projects that mortgage lenders would typically shy away from, such as repairs or improvements on a home.
Your credit usually doesn’t matter
Although some hard money lenders may still want to know that you have sufficient assets and no history of failing to pay back large loans, many will not even consider your credit rating or history. A hard money loan will be based completely on the value of the underlying collateral. This means that the amount that you will be eligible to receive will be some fraction of the assessed value of the home being used for collateral. This number will usually be around 50 percent of the home’s estimated value.
A California hard money loan can get you fast cash
Real estate investors and others who need hassle-free cash in larger amounts than other short-term loan types usually provide love the ability of hard money lenders to get them cash in hand without delay. Traditional mortgage lenders pour over all of the borrower’s personal finances, looking for anything that may indicate a high risk of default on the loan. If the lender finds something they don’t like, the application process can be delayed for weeks or months.
With a hard money loan, many borrowers are able to get the cash they need transferred to their account on the same day.
California Hard money loans are flexible
Hard money loans can be used for almost any purpose that the borrower deems necessary. Unlike traditional mortgages, hard money loans can be used for making repairs to a home, renovating it for later resale at a higher price or even to cover the costs of a short-term emergency. There are often literally no restrictions on how a hard money loan can be used.
Drawbacks of California hard money loans
Hard money loans also have a number of drawbacks. The first is that they cost more than traditional mortgages and other forms of secured loans. A typical interest rate on a hard loan will typically be in the double-digits and, in some cases, may exceed 20 percent.
Another negative with hard money is that the loan-to-value ratios are often lower than with traditional loans. This increases the risk to the borrower because any failure to pay back the loan on schedule could result in the lender taking possession. This means that a $100,000 home could be effectively lost over a $50,000 debt.
For certain home buyers and those needing large sums of short-term cash, the responsible use of hard money loans can provide a great alternative to traditional financing.
The Pros and Cons of California Hard Money Loans
The majority of loans are created based on repayment ability. This is dependent on a person’s income and credit score. If the individual has a good track record of borrowing money and paying it back, that person will likely get the loan they need. Traditional lenders can be very slow to approve loans, even if the applicant has an excellent income and solid credit rating. An individual with a negative credit history or an unverifiable income may never get a loan approval.
A California hard money lender offers a loan based on the collateral a person provides, such as a home or land. This loan is typically easier to get because it is not based on the ability to repay it. If the borrower cannot pay the money back, the lender simply takes the collateral and sells it to recover their funds. The collateral has a higher value than the borrower’s credit rating or income. Since the interest rate for a hard money loan is much higher than a traditional loan, it is practical for only a short period of time, averaging between one to five years.
With a higher interest rate, a hard money loan may not seem like a good choice. For those who cannot qualify for a traditional loan, it does offer the following benefits:
• Fast money. A California hard money loan closes more quickly because the lender is not concerned with a borrower’s financial status, only the collateral provided. Lenders also do not need to invest time in looking at bank statements or verifying a borrower’s income. Once the relationship has been established, the loan process can proceed smoothly, and the borrower will get their money right away.
• Flexibility. Since each hard money loan is evaluated individually, the approach offers more flexibility than the traditional loan process. Depending on the borrower’s circumstances, repayment schedules can be adjusted to better suit both parties. This is because there is a direct relationship between lender and borrower, rather than borrower and a company with strict rules.
• Approval. The main concern for hard money lenders is collateral. Most are not concerned with a borrower’s credit history, although some may ask general financial questions during the approval process. Lenders like a low loan-to-value ratio because this will allow them to quickly sell a property if the borrower defaults.
Hard money is best suited as a short-term loan. This type of financing is often used by those who buy and “flip” houses. It makes sense because the borrower only occupies the property long enough to increase its value. If the person wants to stay there indefinitely, it is better to refinance.
While California hard money loans are generally easy to get, they are not a perfect solution. They are costly, and the plan has to work smoothly for all parties to profit. In addition, lenders may value collateral property at a lower value than the borrower prefers. Borrowers should also consider other types of financing, which may help them come out ahead in the long term. A person may qualify for an FHA loan even without a perfect credit history. Interest rates for hard money loans can run into double digits, and the borrower may be forced to pay an origination fee to close the loan.
Those who need to borrow money and want to obtain a hard money loan can reach out to local real estate investor groups and agents for the names of lenders who operate based on collateral. Talking with a few different California hard money lenders and building strong relationships is the road to getting funds quickly when they are needed.
The critical difference between traditional lenders and hard money lenders is the fact hard money lenders are asset based lenders. They entirely revolve their decision based on on the collateral associated with the by the potential borrower. But, traditional lenders focus on the borrowers credit and liquidity. It’s critical to remember hard money loans are not good for the long run. The objective of a hard money loan is to be a bridge loan that which helps you get the asset you are trying to buy. Hard money lenders focus on 6-24 month termloans that get them a great ROI. If you fail to repay the loan you took, then the lender can take possession of your property to be able to settle his/her loan.
Hard money loans are used as investment tools by investors. Here are some examples where they are helpful, such as:
Unable to find financing elsewhere. Funding real estate investments is complicated. Traditional mortgages are tough to get under normal situations. Banks are very cautious of extending a loan for real estate investments, as opposed to loans for primary residences. Because of this, if you’re looking for investment capital – then you’ll probably have to get a hard money loan.
You’ve got a bad credit. Hard money loans are based off the collateral of the investment, not your ability to repay. Loans made to consumers – as opposed to private money lenders – are centered around whether you’ll be able to repay the loan or not. This means if you’ve got a poor credit history or no stable income – then you might not get approved for a loan. You need capital. Hard money loans are great so you can get money ASAP. Traditional loans take time. Hard money is extremely fast. If you need to capitalize on an opportunity immediately, then it is possible to find a hard money loan. If you can wait several weeks, then it’s better to get a hard money loan.
Hard money lenders can help finance your next deal
Hard money lenders assist a very specific group of individuals, i.e. property investors. Hard money lending is a form of bridge term financing, which is secured by real estate. Specifically, the people who use hard money loans are generally real estate investors – typically, people who are being denied a conventional loan due to stringent guidelines.
Hard money lenders exist since they’re fast, and provide loans with little to no headaches. Hard money lenders have a relatively simple application system. They expect collateral and do not look at your credit score. They focus on your experience, as opposed to your creditworthiness. In case you have a bad financial past, it will be easier to obtain financing by using a hard money loan as opposed to a conventional loan which is granted based on your credit report. Below are situations where hard money lenders fill a void that conventional lenders do not touch:
California Hard money loans can be used for repair and flip property investors
Most traditional lenders won’t offer you a loan to get a fix and flip job. If the home is in poor condition, or there is some other abnormality with the house, then a conventional lender won’t give you funding. In addition, most reverse and fix potential deals”go quickly.” The seller is very motivated to sell the property and will accept the first offer. Traditional lenders take forever, so by the time the loan is approved – you’ve already lost the property since someone paid money for it. For those who have a hard money lender on your side who can close a loan in 5-10 days, you can find the fix and flip property.
Hard money loans are essentially bridge loans
From time to time, your job goes over-budget and because of this, you need additional funds. Some conventional lenders will deny because the project isn’t finished. Though this can be devastating, a hard money lender might be willing to lend you the money. Hard money lenders are delighted to provide money to bridge the gap in financing and can work with you to fill that void.
Hard money gives you bargaining power
If you’re a real estate investor, more funding means more deals. By using outside hard money, you can get involved in more simultaneous deals that would otherwise not be possible. Traditional lenders look at your overall debt to income ratio, and won’t give you funding if they think you have a lot of existing debt. In contrast, a hard money lender does not care about your income, nor do they care about your present debt. The only thing a hard money lender will care about is the value of your property. Hard money loans are excellent for developers who need funds to get their project started but aren’t a good fit for conventional lenders. Keep in mind, traditional lenders are not interested in taking on additional risks – they legally aren’t allowed to following the 2008 crash. Hard money loans can close faster than conventional loans from a financial institution, which allows you to move faster. Many sellers will be extremely reasonable on their price and willing to work with you – if you can show you have funds available. Many real estate investors that rely on traditional lenders cannot move fast because of delays because of the strict guidelines conventional lenders have.