Hard Money Loans California
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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
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.
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.
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.
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.
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.
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.
Are you a business owner who wants to expand in California? Maybe you would like to move from a rental office space to owning your own building, or are you interested in making renovations to your current office building? If you are planning your next steps toward expansion, you may want to consider a commercial business loan.
Many growing businesses need to make renovations and expansions to be successful, but new construction projects can cost thousands to millions of dollars to complete. Many businesses don’t have the cash to cover the cost of new renovations and construction projects. In these circumstances, a commercial construction loan can be helpful.
What is a Commercial Construction Loan?
A commercial construction loan is used to help California business owners cover the costs of constructing or renovating a building. The funds from a commercial construction loan can be used to pay for materials, labor, and even purchasing the land for a new building.
A commercial loan isn’t a commercial mortgage. A commercial mortgage is made for business owners who want to purchase existing office properties. A commercial construction loan is for business owners who want to construct a new building or make renovations to an existing building.
Commercial construction loans are different than traditional loans. With traditional loans, the borrower will be issued one lump sum. After the funds have been disbursed, the borrower is responsible for paying back the loan, which is usually under monthly payments. Traditional loans have a payment period of at least 10 years.
With a commercial construction loan, the funds will be disbursed throughout the construction project. When you are taking out a commercial construction loan, you will meet with the lender to establish a draw schedule. A draw schedule will allow funds to be disbursed at the end of each project milestone. For instance, the first draw may be after the contract has been signed to purchase the land, and the second draw may be after the foundation has been poured. In most circumstances, the lender will send an inspector to the project site to confirm that the milestone has been completed. This process will be continue until the project is completed.
Another difference between a commercial construction loan and a traditional loan is how they are repaid. A commercial construction loan only requires that the borrower pay on the interest of the money that has been disbursed. For instance, if a business owner took out a commercial construction loan for $550,000, but he or she has only been paid $200,000 of the total loan amount, then the borrower will only have to pay for the interest on $200,000. Business owners with good credit will have lower interest rates when it comes to commercial construction loans.
Once the project has been completed, the borrower can pay the remaining principle in one sum, but there are other options for borrowers of a commercial construction loan. If a business owner doesn’t want to pay the full amount, then he or she can opt to take out a commercial mortgage. A commercial mortgage uses the property as collateral and enables the borrower to pay the commercial construction loan with the funds from the commercial mortgage. This allows borrowers to make fixed monthly payments that are more affordable than paying the principle balance at once.
Be Prepared When You Apply!
If you are applying for a commercial construction loan, you should have a business plan prepared to let the lender see each step in the construction project. In addition, lenders typically ask for cost estimates of labor, materials, and other materials.