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What is Hard Money Loan and how can we help you?
You may be wondering about a hard money loan and hard money lenders. Who are they? What are they? How can a hard money lender help me? Are hard money loans beneficial? Here are some basic facts about hard money loans and hard money lenders. Let’s first understand what the term "hard money" really means. When money is discussed in banking terminology, it is considered to either “soft" or "hard". Soft money is easier to qualify for and the terms are generally more flexible. Hard money is exactly the opposite. Hard money loans are much more restrictive. Not that they are more difficult to obtain, but the terms are specific and much more strict. These hard money loans are funded by private individuals who directly invest in your loan. This is why hard money loans are also called "private money" loans. The loan funds for your investment needs come from individuals, not the standard lending institution. So the top priority is to protect the investment capital. This is why hard money loan terms are so specific.
What are these strict terms used by hard money lenders? Hard money terms vary from lender to lender. Some hard money lenders lend solely based upon the deal or property at hand. Lending up to a determined percentage of the fair market value of the property, this insures that in the event of default, the hard money lender would recover investment cash plus profit if they had to foreclose and then sell on the open market. Other hard money lenders require more than just equity to qualify. Consumer protection laws, expensive court procedures, and declining property values are what drive hard money lenders to increase loan qualification requirements.
It serves your interests to familiarize yourself with the terms used by hard money lenders so you can choose one that fits your needs. Here are some general terms you will see when pursuing a hard money loan. Most hard money lenders will only loan you up to 70% ARV (after repaired value). This means that a hard money lender can loan you up to 70% of what the home is worth in repaired condition. So if you find a home worth $500,000 in the condition it's in, and needs $90,000 in repair work, and after it is repaired the current fair market value is worth $1,000,000, then typically they can lend you up to $750,000, which would more than cover the cost of the house and repairs.
You should expect high interest rates for any hard money loan. Interest rates vary from 18% - 30% annually and terms can last for 6 months to several years. The best hard money loan lenders know how to research and structure a deal so that no credit check or income verification is needed. In most cases, there will be closing costs or other fees built in for acquiring hard money loans. Most often a hard money lender will charge anywhere from 2-10 points to use hard money. One point equals one percent of the mortgage amount. So charging 10 points on a $100,000 loan would be $10,000. So you can see the need to have clear investment objectives for the hard money loan. You need to use the hard money loan to create an opportunity for you to profit as well as recover the loan amount and all expenses. Only an investment that meets this criteria can be a vialble investment for a hard money loan.
You should also know how quickly funds will be available. When you find good investment properties, you need to move quickly. The ability to get access to your hard money funds quickly can make or break an investment deal that is in competition with other investors. You want to build relationships with hard money lenders early in your investment life. Also watch out for pre-payment penalties. Pre-payment penalties can hurt your deal and limit your ability to free up cash for the next deal. Hard money lenders just like traditional banks will require you to fill out a credit application that may ask you for W-2's and or tax returns, your most recent pay stubs, and bank statements. This is just due diligence on the part of the lender and may or may not be a indicator of your loan qualification. If the deal you are working on is strong and the numbers add up, the hard money lender may just want in and take an equity position in your deal regardless of your personal lending qulification.
Who should you use a hard money lender? Hard money is a good option for any savvy investors who can leverage the cash quickly to create a profit. Standard soft money or conventional loans take 30 to 60 days or more to fund. That much time is seldom available to an investment deal. Often called "Nothing Down" investing, if you can quickly buy a property, fix it up and sell it for a profit, then you've just made money without using any of your own money. As we stated before, the sales price must cover the loan plus loan costs and give you additional profit to be a viable investment.
Now that you know what a hard money loan is and what hard money lenders do, you can make an educated decision about whether or not using a hard money lender is right for you. www.HardMoneyLoan.com is a California Hard Money Lender. Check out Hard Money Loan online for more information