Riverside Hard Money Loans
If you’re looking for funds to invest in a residential, or commercial, property – then it’s likely you’ll hear about hard money loans. This is a type of loan reserved specifically for real estate investors, in need of cash, who are looking for a short term source of funding. Typically, hard money loans given by Riverside hard money lenders are repaid in 6-24 months. Due to the fact these loans are coming from private lenders, they are funded much faster than traditional mortgages. Having said that, they have their advantages and disadvantages.
Advantages Of Riverside Hard Money Loans
Hard money loans typically get processed faster than traditional loans. In addition, Riverside hard money lenders are more willing to work with people of all credit scores. They are also happy to give those loans out with less paperwork and red tape. This means that you can literally have the money in your account as quickly as soon as you send in the application. It’s not unusual for a lender to do a little investigating of your credit worthiness, but it will be far less in-depth than it would be with a traditional lender.
In addition, hard money lenders typically offer more flexible payment terms. They understand that people have to work out their financial situations to figure out how they will make payments. Hard money lenders have great flexibility when it comes to offering just about any kind of terms that they want to. Because hard money loans come from private investors, there aren’t stringent guidelines – which are followed by traditional lenders.
Disadvantages of Riverside Hard Money Loan
As with all good things, there are some drawbacks to Riverside hard money loans as well. Yes, they do a lot of good for people who legitimately need those funds in a pinch, but don’t forget that there can be some downsides to them as well.
The first thing you need to know about a hard money loan is that you need a significant amount of collateral. It’s not uncommon for hard money lenders in Riverside to want a LTV (loan to value) ratio of 50-70%. It’s unusual, and unlikely, for a hard money lender to fund a project higher than 70%. This requirement is in place so that the lender can safely get their money back in the event that you do not pay back on your loan. Hard money lenders sell the property in question in the event you fail to repay the loan. This is how hard money lenders get their money back.
Another disadvantage of hard money loans is the interest rate. It’s common for interest rates to be significantly higher when utilizing a hard money loans. Another thing to remember is that you can lose your property if you do not repay your loan. This point cannot be stressed enough. Many novice investors don’t properly estimate how long it’ll take them to repay the loan, and thus get foreclosed on by the hard money lender.
What a Riverside hard money lender is looking for
Riverside hard money lenders care about one thing exclusively: the value of the property being used as collateral. Hard money lenders lend against an asset – such as a property or something else along those lines. In contrast to traditional banks – who are betting on the fact you’ll pay them back because you’re trustworthy and have good credit; hard money lenders are betting that the property is worth more than the loan. As a result, hard money lenders are taking very calculated risks. If you want a hard money loan, be prepared to prove WHY your project will succeed – and how the lender will get his money back. Hard money lenders aren’t giving you money because you have a great credit score – they are betting that your project will succeed and they will get repaid.
If this is your first time working on an investment property, then you’ll need to be able to prove that you can handle such a project. For example, some Riverside hard money lenders might request you have a general contractor on board who submits a construction plan.
Do hard money lenders charge interests monthly or at the end of the loan?
This is a question we often get from people who have never borrowed hard money before. As a hard money lender, we care deeply about making sure a hard money loan is truly what you need. If we don’t think a hard money loan is the best option, or if we think you’re a great candidate for traditional lenders – then we’ll tell you that upfront. You deserve the opportunity to succeed – and us being honest is important.
To answer the question: yes, hard money lender’s charge interest monthly.
Before you run off and get a hard money loan, though, here are somethings you should understand. These types of loans are the lifeline of projects that have a balance sheet, real assets, and personal guarantees, in order to create value which is being pledged to the transaction. In many projects, the main person running it runs out of money, doesn’t have funds to finish the project, and wants to utilize the equity in his/her existing assets – to get financing for the incomplete project.
There’s a number of reasons why someone might need capital. Bottom line, if you are eligible for traditional financing for your project, then you should turn to it first. You should only use hard money after you’ve exhausted all your other options. There are many advantages and disadvantages to using hard money and bridge financing. You need to make sure the funding matches the needs of your project.
Typically, hard money lenders have the following basic guidelines. Each lender is different, but when it comes to interest payments, etc, here are some basics:
Rates – 6 to 20%
Terms – 1 to 3 years
Points-in: 0-300 BPS
Points-out: 0-200 BPS
The key to getting a hard money deal closed is getting through the underwriting process. Hard money gives you leverage – make sure you need it before trying to get it. You can use hard money loans for things like hotels, multifamily, office, mixed-use, industrial, retail, student housing, raw land, and other real estate. In the event you think you’ll need a hard money loan – it’s good to get pre-approved first, but don’t take the money until the absolute last minute.
Hard money loans are simple transactions when it comes to LTV. Lenders will give you a loan up to a 70-80% of LTV. Lenders look at your ability to repay the loan – but also, more importantly, look at the value of the asset. Loans over 60% LTV are considered risky by lenders, and as a result you should be able to substantiate why your project deserves the funding. It is common for Riverside hard money lenders to expect you to put, “some skin in the game,” by investing your money into the project as well. Hard money lenders want to guarantee they’ll get their money back.
Having a clear exit strategy is critical. Any hard money lender will require one, in order to understand how his/her principal and the interest will get paid back eventually. The higher the LTV, the more complicated and risky the deal is for a potential lender. As a result, you should expect higher interest – commensurate to the risk.
What to do next
If you are positive you need a hard money loan, we encourage you to contact us. Delancey Street is a respected hard money lender, that has experience handling residential and commercial hard money transactions. We can help with virtually any type of transaction up to $10 million. Our team has funded over $200 million in transactions, and is here to help you get the funding you need.