Hard Money Loans San Jose
Get your next San Jose hard money loan today
Many real estate investors turn to us when traditional lenders refuse to give them funding. Many traditional lenders will refuse to fund investment properties, whether they be residential or commercial. After the crash of 2008, many banks now have more stringent guidelines and don’t offer funding on real estate investment properties. In order to get around this, real estate investors turn to San Jose hard money lenders like Delancey Street to help them. We fund millions in loans every month for residential and commercial properties.
What Does Delancey Street Look For?
Delancey Street cares about one thing: whether the project will succeed or not. We look for a business plan, and “hard,” numbers we can look at rooted in data. For example, if you plan on doing a fix and flip – tell us the purchase price, the cost of repair, and the expected after repair value. Show us data from comparables in the area that have a similar structure to yours.
Hard money loans are one of the many ways to get funding for your next project. With hard money loans, investors or individuals lend the real estate investor money. They do this – because they take an asset, such as real estate, as collateral for the loan. Hard money loans are the best bet if you need quick cash and cannot secure a loan from another source.
While most loans require some type of proof that they can be repaid, this isn’t the case with hard money loans. Traditional lenders require a good credit scores, and sometimes they can still be painfully slow even when you’re approved.
Hard money loans are based on the collateral pledged to the loan. In the event you don’t pay back your loan, the lender will simply take your collateral and sell it. The loans have a quick approval rate, and terms can be from one to five years.
There are many pros and cons of hard money loans. Some of the pros:
Speed: Because the loans only need collateral, hard money loans are often closed a lot quicker than traditional loans. Because income verification and credit history isn’t necessary, the process tends to move a lot faster. In many cases, you could be approved within 24-48 hours due to the lack of paperwork needed for the process.
Flexibility: The agreements are more flexible because there is no standard underwriting process. Each deal is evaluated on an individual basis. Depending on the situation, certain terms can be tweaked to the benefit of the loan recipient. The ability to negotiate and renegotiate if needed makes it easier to fit your needs. Remember, with hard money loans, you aren’t dealing with strict lenders with stringent terms.
Approval: The most important component of the hard money loan process is having collateral. Above all, the lender cares about the value of your collateral. Your credit score is unimportant. With hard money lending, loan to value ratio can be 50% to 70%. So your collateral has to be significant in order for the lender to have a good shot of recouping their money if the loan is defaulted.
These are the drawbacks of hard money loans:
High Interest: One of the biggest cons of hard money loans is the interest, which is considerably higher than regular loans. In some cases, the interest can be double-digit. High interest is due to the hard money borrowers are considered high risk. Before you get a hard money loan, make sure the “numbers,” make sense financially.
Short Term Only: Hard money loans are generally for 6 months to 3 years. The loans are private and they are generally used only for real estate investment properties. The borrower should also be aware that the lender may want the entire balance of the loan paid in full at the end of the loan’s term. That means the lender will expect a lump sum payment at the end of the loan.
What Are Typical San Jose Hard Money Lender Fees?
As with a traditional loan, hard money comes with many fees that can add to the cost of your loan in addition to interest charges. These fees provide income for hard money investors. As a borrower, it’s important to understand the fees you may be charged. It’s important you factor them into your overall business plan so you can understand whether your project will be profitable or not.
Some fees are paid directly to the lender while others pass through the San Jose hard money lender. The appraisal fee is a common “pass-through” fee that is paid to the appraiser of the property. You may also be charged credit card fees which cover the expense of a credit report.
A point is calculated as 1% of the total loan amount. For example, 1 point is equal to $5,000 on a $500,000 loan. Some San Jose hard money lenders charge points without separating underwriting fees and other costs to make closing costs simpler, or points may be charged in addition to these fees. The number of points charged will depend on many factors such as the loan-to-value (LTV) ratio, the complexity of the project, and risk. Upfront points are typically 3 points higher for private hard money loans than with a traditional lender.
This fee is usually a set dollar amount and it goes directly to the lender to cover underwriting. With most hard money loans, the underwriting fee will be between $750 and $2,500. This fee will usually be paid on top of any points you must pay, although some hard money lenders incorporate underwriting fees into the points.
Document Preparation Fee
This fee may be charged as a pass-through fee if the hard money lender uses a third-party company to prepare documents. Some hard money lenders prepare documents in-house, however.
Hard money lending is a very specialized business. Some lenders specialize in apartment complexes and residential rehab projects while others focus on office buildings and other commercial properties, for example. Many San Jose hard money lenders refer clients to a different lender who is better suited to the client’s loan situation. If this happens, you may be subject to paying a referral fee. A portion of the fees you pay for your private loan will go toward the original lender.
If you take out a construction or rehab loan, you will need to establish a draw schedule. Many lenders require 3 or 4 draws, although you can usually take as many draws as necessary until completion. At each stage of completion, you will contact the lender to request an inspection and a release of the draw. You will need to pay construction draw inspection fees that may be $100 to $150 each.
You may have the option to renew your hard money loan if you have been a dependable borrower who has paid on time. This is beneficial to the investor as their money will continue earning a return and you will receive additional time to pay back the loan. If you do renew the loan, you will likely need to pay a fee. You can pay the fee upfront or have it added to the principal of your balance.
If the San Jose hard money lender services the loan, an investor will pay loan servicing fees directly to the lender. The lender will collect your payments, maintain records, and supply you with reports. Loan servicing fees are sometimes charged at a flat fee per month but they can also be charged as a percentage of the total loan (usually 0.25% to 1%) and paid monthly.
As with any other loan, you will end up paying a late fee if you make a payment past the date specified in your promissory note. Most lenders split the late fee with the investor.
Most hard money lenders offer foreclosure services, although some outsource foreclosure work. In some cases, fees generated during a foreclosure may be shared with private money investors. If you are planning to take out a hard money loan, it’s important to discuss the fees you can expect with your lender during the application process. A reputable lender will be upfront about points, underwriting fees, and other expenses you will face.