What Is A Hard Money Loan?
A hard money loans la mesa ca is a short-term loan that is secured by real estate
from a non-traditional lender (i.e. not a bank, credit union, etc.). Hard money
lenders are usually private investment firms. The amount of a hard money loan
depends on the value of the collateral property.
Basically, a hard money loan is an alternate way to borrow money without going through
traditional bank mortgage lenders. Most hard money property loans come from individuals,
investors or groups of investors.
Hard money is an option for those who need funding fast and for those who may not qualify
for traditional long-term bank loans. It is important to understand how these types of loans work.
Hard Money Loans in La Mesa, California
La Mesa, CA has 50 hard money lenders serving the city. Note amounts average around
$318,864. The average interest rate for private loans in La Mesa is 8.9%. The mean
term for notes is 16 months. The average origination fee for loans is 3.4 points.
The average LTV for loans in La Mesa is 74%.
What are the Advantages of a Hard Money Loan?
There are a number of reasons why residential property buyers and commercial
buyers and builders seek out hard money loans. Some ways that hard money loans la mesa ca
is different than a bank loan include:
- Faster application, approval and loan processing
- Provide more financing for distressed property in need of repairs or renovations
- Property value has most clout, individual financial history or credit is not as important for approval
- Less paperwork and requirements from application start through the end of the loan term
Using a hard money lender is beneficial because the focus is not on the ability of repayment.
Instead, more concern is for the value of the collateral, or property. Hard money loans are
short-term loans lasting anywhere from 1- 5 years depending on the lender.
How Can I Qualify for a Hard Money Loan?
Bank loans require excellent credit in order to offer a low interest rate rate, but great
credit is not necessary for a hard-money loan. A cash contribution of 20 to 40 percent of the
property or project costs will need to be supplied by the borrower.
Financial records such as bank, retirement and investment statements, pay stubs, driver’s
license, social security card and other documentation depending on marital status is required.
For those who are self-employed, two years of past tax return statements and business
banking statements may be required.
In addition, depending on the property type, a business plan for the project, including a
budget for renovation costs, title statements and property assessments may have to be
included. Banks require more extensive paperwork, while hard money lenders require less.
Where Can I Get a Hard Money Loan?
For those seeking hard money loans, they can be obtained from hundreds of private
financial firms both small and large. Many of these lenders can be found locally or online
by the click of a mouse, but it is important to research for complaints and compliance.
Sometimes the existing property owner may be able to provide financing for the investment,
or fix and flip deal. Local banks, credit unions and large nationwide banks also offer real estate loans.
Another place to obtain a loan is through an existing mortgage. Current homeowners
who have built up enough equity in their home can apply for a home equity loan or
line of credit (HELOC). This can allow the buyer to borrow up to 80 percent of the equity
value against their primary residence. Being that your primary residence is used as the
collateral in this transaction, it can be a more risky way to secure financing for those who are
inexperienced property investors.
Different Types of Hard Money Loans
There are several different ways hard money can be loaned including:
- Fix and Flip Loans
- Investment Property Loans
- Bridge Loans
- Cash Out Refinancing Loans
- Commercial Loans
- Construction Loans
There are similarities between each of these and some of the names are used interchangeably
in the real estate and financial industries.
Bank-issued loans for terms of 15 to 30 years can be used to purchase long-term
non-owner-occupied properties in good condition. These loans offer lower interest rates than
hard money private lenders.
Government sponsored lender Fannie Mae, offers a Homestyle Renovation Mortgage for
single-family one-unit investment properties, units in condos, co-ops, mobile homes and
planned unit developments (PUDs). Any renovation or repair is eligible, as long as it is
permanently affixed to the property and completed within a year of the loan issue.
In some cases the party selling a property can offer a loan to the buyer. Other non-conventional
ways of funding a loan is by partnering with someone who has the cash, receiving a loan from
friends or family, borrowing from a retirement account or 401k, taking out a personal or
business loan or home equity loan or line of credit (HELOC).
Hard Money Loans vs Traditional Loans
How is hard money different than traditional loans? There are three main areas:
Flexibility. Hard money lenders do not use a typical bank underwriting process so agreements
can be more flexible than traditional loan agreements. Negotiations regarding terms and
requirements can be a lot less stringent with a hard money lender than a bank.
Approval. Since the most critical factor is collateral, the lender will provide financing typically
up to 85 percent of what the property is worth. Those who have a foreclosure or negative
events on their credit report will find a hard money lender is much more forgiving than a bank lender.
Speed. Hard money loans close quickly in comparison to other loans. The application
process of a hard money loan can take a few days. In contrast, a bank mortgage application
can take weeks to complete due to the financial records and documentation required.
In addition, the approval process for a hard money loans la mesa ca, can take a month or more.
With hard money lenders, the approval process often takes less than a week. Experienced
buyers or builders who have an established a relationship with a hard money lender can
get through the process even quicker than new borrowers.
Hard Money Loan vs Bridge Loan
Frequently referred to as hard money, a bridge loan often finances a property that may be in
transition and does not yet qualify for traditional financing. Bridge loans are short-term
loans used until other permanent loan financing can be secured. A bridge loan allows the
borrower to fulfill current obligations or property rehabilitation by providing immediate cash flow.
Similar to hard money loans, these loans have higher interest rates and are usually backed
by some form of collateral, such as real estate. These loans can be issued through a bank or
privately and the term is a few weeks, up to one year.
Properties Good For Hard Money
Several property types can benefit from a hard money transaction. There are various scenarios
where hard money can be used as a tool to get the buyer to arrive at their end-goal whether
it be owning an investment, a primary residence, or some other scenario. Properties suitable
for these transactions are aplenty:
- Single-family homes
- Multi-unit homes
- Duplexes or split residences
- Commercial Projects or Major Equipment
- New Construction
Another type of property that is gaining in popularity is private residential travel lodging or homestays.
These properties are purchased with the intent to rent out all or part of the property daily,
weekly or monthly as accommodation for visiting travelers. Popular travel booking websites
showcase these short-term, privately owned rental properties.
Example of a Hard Money Loans La Mesa Ca:
Marilyn and John are a young professional couple wanting to increase their savings and
start building wealth. They stumble upon a foreclosed condominium home for sale that they
feel would be a good fix-and-flip project. The property was last purchased for $195,000,
but the bank is willing to sell for $115,000.
The couple believes that a $35,000 investment will create a property that will sell for $195,000
after repairs. A hard money lender agrees with their ARV estimate and is willing to
lend them 70%, or $136,500. John and Marilyn use the loan proceeds to purchase the
home and pay for half the rehab. They allow the lender to put a lien on the property and
they contribute $19,500 to complete the project. If the property goes on the market and
sells for $196,000 or more, they will clear a profit of $30,000, which is a 200%
return on their $20,000 contribution.