This question is often asked more than any other when talking about San Diego Hard Money. To start, hard money is also commonly called private money.

In this article you will learn about a San Diego hard money loan and the different aspects it takes to complete one. Refinance loans, development loans, purchase transactions and processing of the loan will be explained.

Typical ideas associated with a private money loan must be explained. The private loan must have a low LTV (loan to value) ratio. This is due to the basis of the loan being weighed upon the equity available for the property being promised as collateral.

Typically loans are written at 65% LTV and under. This would require that the loan amount, in comparison to the value, be under 65%. In addition, the property must be in marketable condition. Investors and private lenders may consider a property in a less marketable area as long as the LTV was low enough to offset the risk of lending the money.

In addition, the ability of the borrower to repay the loan must be shown. These loans are justified by the borrower’s capacity for repaying the loan and the presence of strong collateral.

As with any transaction, the fees,terms and rates will vary.

For some general insight, rates will vary anywhere from 9-15% depending on lien position, property type and overall risk of the transaction. The terms written are typically much shorter than conventional loans with terms ranging from 1-3 years on average. Fees will typically be anywhere from 2 to 4 times that of conventional loans.

Now that the guidelines as they typically occur have been discussed, here is some information that may help explain the use of hard money loans in various transactions.

1. Purchase Transactions – When structuring these types of loans, the lender will scrutinize the purchase agreement and the appraisal for the property in question. The appraisal will be the basis for value and the purchase agreement will determine the market and subsequently create a foundation for the transaction.

Using the appraisal or the purchase price, the lower of the two will be the basis for the LTV and the loan amount. True value is normally the result of the price. Where a purchase is concerned, the price is the agreement reached by the buyer and the seller. Most lenders will evaluate purchases in this regard. In certain cases, equity consideration may be given for a discount in price as long as the borrower can prove an extreme discount has been made.

Another way that purchase loans differ from typical transactions is the borrower must set aside the down payment and fees into an escrow account.

2. Refinance Loans – The refinance loan differs from the purchase loan because the lender’s top concern is established value and respective loan amount. As a result, the lender will want to review the appraisal and any existing liens. Different that purchase transactions, fees are tied into the loan when dealing with a refinance transaction. The fees are added to the amount the borrower gets after paying off existing loans or obtaining cash out.

3. Development/Construction Loans – These types of loans have three distinct features. First, the LTV is often based off of a future value. Secondly, there is typically a draw schedule that mandates how funds are distributed.

And last but not least, an account called an interest reserve account is opened for the money to be deposited for repayment during construction. This is what makes a development loan different than other private money loans.

When seeking a hard money loan you will have to provide documentation that is typical for these type of loans and possibly more detailed documentation contingent upon your situation. The typical documentation would be bank statements, title policy, income documentation, appraisal, borrower’s credit report and the borrower’s application.

If detailed information is required it may include a construction breakdown, draw schedule, purchase agreement and executive summary. The private money loan is usually drawn up in about 7 to 14 days after the lender receives the loan package. This time may be more or less depending on the transaction itself.

In the end, a San Diego hard money loan is the best way to get the money for a non-conventional undertaking in the least amount of time. Ideally this has given you a basic understanding about the workings of a hard money loan.

One of the best ways to get started with building your own personal wealth-building system is by investing in real estate. Becoming a real estate investor is a daunting task, but one that will, if operated efficiently, pay dividends forever.

How do you start? Well lets take a look at a few time tested methods.

Plug into your local real estate investors association. Most medium to large communities have a real estate club where other real estate investors attend regular meetings. These are other investors with the same goals and dreams as you.

Most of these clubs are very open with new members or any one intrested in investing. So show up and mingle. Most investors love to share war stories or exchange information on purchases they have mad or services they have used.

Before you spend a dime. Make sure you map out what you want to invest in and what your going to do with it. BE SPECIFIC. What type of property. are you going to hold it for apprecation or are you going to turn it over?

So know you need to decide on the type of investment property you want to invest in. do you like the idea of duplexes? Single family homes? Small apartments? Remember this, if you start out with one type and become familliar with it, then you will learn exactly what you need to do to make the profit from it. Being a specialist in this manner can lead to faster profits.

Ok now comes the fun part. you need to find the people that offer the skills you need to accomplish your plan. Contractors,handy men, sub-contractors etc. Finding the right people to make your team is the hardest part of this game. (I use the same people for the same job on EVERY property I buy)

So lets say you choose to do the “fix and flip” game. People to have on your team are a contractor, electrician, plumber, and to be safe a heating/air condition guy. Now if you can find one…and the property isnt getting major work (like say a room addition) you can get away with a good handyman who does all the above.

Find a real estate agent that understands property investors and their needs and is willing to work with you on a continuing basis. An agent gives you access to property information, including the Multiple Listing Service. An agent who understands real estate investing can also find you good deals within your specific market.

Time is always a key factor in real estate investing, so always look to ways to “turn” a property in the least amount of time. A property that remains unsold or not rented is eating up profits every day it in your possession. Learn to cut the losses on properties that fail to meet their profit potential.

Are mistakes going to happen yes. They happen to every real estate investor..the trick is to learn how to spot them. the longer you hold on to a property the lower your profit.

Be resourcefull and pay attention to your bottom line. build a good team and you will have a nice profit at the end of every investment.

San Diego hard money, also know as private money, can be a perfect source for bridge loans. A bridge loan is a general term used to describe a short term loan. Typically bridge loans are less than 12 months but could extend as far as 24 months.

They are used in residential and commercial financing.

Often bride loans are used until permanent financing can be secured by the borrower. Because they are short term loans, they usually have points and fees that are greater than conventional bank loans.

In instances where a borrower may need a loan for a short period of time, they may seek private money sources to obtain a loan.

The following are some examples of when someone might need hard money for a bridge loan:

1. You need to close a purchase fast

2. To prevent a property from falling into foreclosure

3. Refinance an existing loan that’s due or will soon hit a balloon period

4. Take advantage of an opportunity with a quick timeline

5. Tap into equity before selling a property with a cash-out loan

6. Need a short term business loan and you have equity in your property

In order to qualify for a hard money loan, you would need to have the following.

1. Equity

2. Loan to Value (LTV) below 65%

3. The ability to repay the loan

In some cases, a property that is already held as collateral may not offer enough equity. In these situations the private investor might be willing to consider other property as collateral by “cross-collateralizing” multiple properties.

While these kinds of loans can be processed rather quickly and are typically written for 12 months or less, the lender must be sure to fully underwrite the property, the borrower, and the borrower’s credit.

Usually the following items are needed to submit for a loan request:

1. 1003/Application (Lender must provide)

2. Credit Report (Lender provides)

3. 2-6 Months of Recent Bank Statements (Borrower must obtain)

4. Income Verification (Borrower must obtain)

5. Contract for Purchase (If applicable)

6. Appraisal of Property (If applicable)

7. Pro Forma (If applicable)

8. Executive Summary (If applicable)

9. Cost Break Down (If applicable)

The typical time frame to complete a hard money loan is usually 7-14 business days from the time the lender receives all the borrower information. As you can see, private money loans close much faster than conventional loans, and for that reason private loans are a good solution when someone is seeking a bridge loan.

The bottom line is that these loans close quickly and provide a good interim solution until a borrower is able to obtain permanent financing. As with most loans, there are few to no fees upfront for getting a California hard money loan. Fees are generally paid in full through escrow upon the closing of the transaction.

If it is a refinance loan, then the fees usually can be financed back into the loan. If it is a purchase loan, then the borrower will have to bring money into escrow before the closing date.

For Example

Refinance example: $200k property value, $100k desired loan amount, and $10k in fees will result in a final loan amount of $110k at 55% LTV

Purchase: $200k purchase price, $200k property value, $60k down payment, $10k fees = $140k final loan amount, $70k paid in to escrow by borrower

San Diego hard money can be used for a variety of purposes. This article provides information on the benefits of utilizing hard money for bridge loans. Because hard money loans can be compiled far more quickly than bank loans, they are a workable solution for quick, temporary financing.

In making a good loan decision it is important to evaluate your needs and identify possible ways to achieve your goals.

1. Just what is a San Diego hard money loan?

A hard money loan, also known as private money, is a loan that is funded by a private individual, entity, or institution.

The security for these loans is a considerable equity position in the real estate being financed. This means the L.T.V., or loan-to-value ratio is lower than a conventional loan.

2. What is the difference between a hard money loan and a bank loan?

The primary criteria for approving a loan with conventional terms, like the ones banks make, is on the borrower’s documentation of their income and the overall health of their history as reported by the big three credit bureaus.

A borrowers income and credit history are still important considerations in creating a hard money loan. However, the most weight is given to the collateral, which is the equity in the underlying real estate.

In California (this may very state to state), the instrument by which a borrower pledges their property as collateral is called the Trust Deed.

The primary difference between bank loans and hard money or private loans is that the lender requires a larger equity position as collateral in San Diego hard money loans.

3. Are hard money loans available on commercial and residential real estate?

You better believe it. It is common to attain private money financing for a variety of commercial and residential property types. In fact properties that do not qualify for conventional financing due to being non-conforming are often successful in qualifying for hard money loans.

The steps taken to make a loan on commercial or residential real estate are similar. The concepts of value and equity between the two are significantly different.

4. Am I able to borrow California hard money if I have a bad credit score?

In the majority of cases where borrowers have credit histories that are less than stellar, this fact alone will not prohibit the availability of private financing. Having said this, almost all private lenders will look at the reports of your credit history.

There are basically two reasons for this. First, they need to determine how much debt you are managing on a monthly basis.

Another reason a San Diego hard money lender will consider your credit history is to determine risk. This is similar to the purpose of a credit report review by a conventional lender. However, the private lender will give less overall weight to this consideration.

Most often if the other parts of your profile are strong you may still be eligible for a loan.

5. Hard Money Loans: Are there a variety of different types of loans?

Yes! There are different loans for different borrowers needs. There are hard money loans for cashing out on residential properties, rehab SFR loans, commercial loans, commercial rehab, construction, land and various private money loans for acquisition.

6. If I need a hard money loan in San Diego, CA, what information will the lender ask for?

The information required to underwrite a private money loan will vary depending on whether the property is question is residential real estate or commercial real estate.

Residential: Application, Credit Report(broker/lender provides), Appraisal, 2 months bank statements of assets, Proof of Income for one to two years.

The hard money lender underwriting a commercial real estate project will typically ask for a financial proforma, a narrative commercial appraisal, two years proof of income, an executive summary, financial statements from the principals (individuals, partnerships, and/or corporations), and a completed application.

7. What is the interest rate on hard money?

The interest rate will vary depending on the transaction. For example, the type of property will affect the interest rate, commercial vs. residential.

Interest rates in the range from 10% to 15% are not uncommon. The interest rate a particular private lender charges will depend on the repayment terms of the loan, credit history, whether the loan will be senior or junior, and the condition of the improvements.

8. What kinds of loan repayment schedules are available with hard money?

In general, fully amortized loans and interest only balloon loans are the most common hard money loans.

9. What type of loan term will I have?

Loan terms from 1 to 5 years are not uncommon. Since the interest rates of hard money loans are higher than conventional loans, the length of the loans is typically shorter than conventional loans.

10. Are prepayment penalties common in private money loans?

This is an issue that is up for negotiation. It will not hurt to ask for terms that do not include a prepayment penalty. Each lender will consider this request in light of the overall strength of your loan package.

There are of course a number of reasons why you may want to use San Diego Hard Money. For example, you may not be eligible for a conventional bank loan, or in fact, the bank may not want to lend you money for some particular reason such as you having a poor credit history, or perhaps there are some issues involving collateral.

Or maybe you are unable to provide adequate documentation according to the banks standards. Maybe you have the need for a bridge loan, have specific investment projects, or need money quickly. These all may be reasons you would obtain private financing.

10. Your property is unacceptable to the bank in terms of collateral

In many cases banks refuse to accept certain buildings as a form of collateral. This could of course be because it’s been rated as being below average by an appraiser, but having said that, they are often reluctant to accept buildings which are designed specifically for a certain purpose such as old age homes and even some resorts.

9. Many people can still make use of San Diego Hard Money irrespective of whether or not they have a poor credit rating.

In many cases, even those who have been unfortunate enough in the past to have had their credit rating affected can still use San Diego Hard Money.

Because private investors and lenders look heavily at the property and the amount of equity available to lien, their primary concern is the collateral and typically their secondary concern is the credit history. This is not an absolute guideline but it often happens this way.

8. The bank needs more documentation

Many self employed individuals and investors have complex tax and financial records. Frequently banks will require tax returns of the individual and any corporate entity associated with the borrower’s earnings.

Hard money lenders on the other hand, will often be willing to accept income tax returns or even bank statements, in order to determine whether or not your income is sufficient for being able to make repayments.

7. Loans for the purpose of Rehabilitating Distressed Properties

Are you working on a project where you need money to acquire and fix up a property? There may be money available for this very purpose.

In most cases, if the borrower can contribute a certain percentage of the money required, San Diego private lenders will agree to take on this type of situation.

6. Building on vacant land

Hard money is often used for construction. If the owner can show an equity position in the land owned and has a complete plan for construction including entitlements, permits, construction cost break down, pro-forma and draw schedule, then they have a strong chance of getting privately financed.

5. People who require to cash out their equity on existing property for the purpose of being able to submit a cash offer on new property acquisitions.

San Diego hard money can be used to secure cash out on residential and commercial property. The typical closing time is anywhere from 7-14 days from the time a full package is received.

4. You have financed multiple properties but you wish to acquire additional properties with financing.

Unfortunately banks all too often decline loan applications to investors if they already have too many open loans. Of course, in this type of situation, hard money may be the only option available.

Unlike banks, private lenders will usually make funds available, providing of course that the borrower is able to show they have the ability to make repayments.

3. You lack sufficient funds to meet escrow time requirements for acquiring additional property.

Private money is a good solution for acquisition of any property where time is of the essence. Because most transactions can be completed quickly, private money is often a first choice for difficult purchases.

2. You require a bridge loan

There are of course many reasons as to why you could require a bridge loan, such as being able to obtain some financial leverage for the purpose of obtaining additional real estate. Alternatively, your business may be experiencing a few financial challenges and in this case, a bridge loan may be an ideal solution.

1. Time is of the essence

When time is short, maybe you need a loan quickly. With San Diego hard money loans you often can complete a transaction within 7-14 business days. This reason alone may be the most important.