Hard Money Loans 101
A hard money loan is a short-term loan funded by private lenders and secured by real estate. Contrast that to conventional loans that are long term and secured with banks or credit unions. Generally speaking hard money loans have nine month terms and require monthly payments of interest only or interest and some principal with a balloon payment at the end of the term. The amount hard money lenders will lend the borrower is primarily based on the value of the property rather than the borrower’s credit. Borrowers who are unable to obtain conventional financing due to adverse credit can still obtain a hard money loan if they have sufficient equity in the property being used as collateral.
“Hard money loans are the right choice when a short term loan is needed and conventional loans are not an option.”
Hard money loans are not appropriate for all borrowers. When a borrower has good credit, income history and no issues such as a short sale or foreclosure, conventional loans are still the best way to go, if the borrower still has time to go through the lengthy approval process required by those financial institutions. Most hard money lenders will not lend on owner-occupied residential properties due to the extra rules and regulations imposed by Dodd-Frank. Hard money loans are the right choice when a short term loan is needed and conventional loans are not an option.
Hard money loans are ideal for borrowers who want to fix and flip, for land loans, construction loans and those with adverse credit. A hard money loan can be funded in under a week, compared to conventional loans, which take 30 – 45 days. California hard money lenders generally have lower mortgage rates than other hard money lenders, since California has so many hard money lending firms. Increased competition leads to lower mortgage rates.
The hard money lender is able to lend according to the ratio of loan amount divided by the value of the real estate, also known as the loan to value ratio (LTV). Most hard money lenders will lend up to 65 – 75 percent of the current property value. Some hard money lenders will lend based on the after repair value (ARV). This is an estimated value of the property after the borrower has improved the property.
We specialize in the following areas: Woodland Hills, Topanga, Santa Monica, Malibu, Venice, Pacific Palisades, West Hills and the greater Los Angeles area.