Top 10 Most Frequently Asked Questions about Private Money in San Diego, CA

May

5th

Top 10 Most Frequently Asked Questions about Private Money in San Diego, CA

Author: Morgan A. Scott | Files under Loans

by Morgan A. Scott

1. What is a hard money loan?

Private money loans, also referred to as hard money loans, represent a family of loans where the capital comes from a private source. Such sources can include any sort of private entity, like individuals, private corporations, and partnerships.

They are typically secured by a strong equity position in the underlying piece of real estate used as collateral. They are usually written with a low loan-to-value (LTV).

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

Bank loans, or conventional loans, place most importance on a potential borrowers income and credit history.

The most weight, in a hard money or private money loan scenario, is assigned to the value of the equity available in the property being consideration for financing. This is not to say that credit history and income documentation are not considered in a hard money loan application. Nothing could be further from the truth. The issue is simply the overall weight give to different criteria.

The trust deed in an instrument used by the borrower to pledge their piece of property as collateral to the lender in case of default of repayment.

It is the size of this collateral, pledged by use of the Trust Deed, that forms the biggest distinction between conventional bank loans and private money financing. The private money lender will require that there will be substantially higher collateral than federally underwritten banks.

3. Are commercial properties and residential properties both eligible for hard money loans?

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 procedures of doing the loan are similar but the concepts regarding the value and equity vary significantly between commercial and residential property.

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.

A hard money lender will want to look at your credit reports firstly because they want to calculate the amount of money you are currently spending servicing debt.

Secondly, they will assess your overall risk by judging the relative strength of your credit historically.

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

5. Is there more than one kind of hard money loan?

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.

A hard money lender underwriting residential real estate will usually ask for 1-2 years tax records, the last two month bank statements, a current appraisal, a completed application, and a three bureau credit report.

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. How much does San Diego hard money cost?

Interest rates on San Diego hard money will vary according to the type of the transaction, the terms of the transaction, and the type of real estate financed.

The interest rate will also vary depending on the following; lien position, term, credit worthiness of the borrower and property condition. Generally speaking the interest rate could range anywhere from 9-16%.

8. Are all hard money loans balloon loans?

San Diego hard money loans can be made fully amortized, as well as interest only, balloon loans.

9. How long will I have to repay my private financed loan?

The length of loan terms for private money loans are normally not as long as conventional loans. Every hard money lender will be different. Typical San Diego hard money loans are made from anywhere from one to five years.

10. Are prepayment penalties common in private money loans?

Again this will depend on the funding entity, but you usually can request loan terms without prepayment penalties.

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