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Ten Common Questions about San Diego, CA Private Money
1. What is a private money loan?
A hard money loan, also known as private money, is a loan that is funded by a private individual, entity, or institution.
Unlike conventional loans from banks, where loan to value ratios can be as high as 97% (in the case of FHA financing), the LTV of hard money loans can be significantly lower, say 55-75%. This affords the private money investor with more security in the form of equity in the underlying property.
2. What is the difference between a hard money loan and a bank loan?
Conventional loans also know as bank loans are unwritten or evaluated by placing a significant emphasis on the borrower's income and the borrowers credit history.
Although both aspects of the loan application are considered when doing a San Diego hard money loan, more emphasis is placed on the underlying piece of real estate that is pledged as collateral.
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 hard money loans available on commercial and residential real estate?
Absolutely! Hard money can be used for any type real estate: single family homes, land, apartments, industrial buildings, office buildings, and retail stores.
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.
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.
Second, they need to determine how you have managed your credit in the past and what type of risk they need to associate with this.
Assuming the other aspects of your full hard money loan package are desirable, most private money lenders will still fund.
5. Hard Money Loans: Are there a variety of different types of loans?
Absolutely! Since the needs of borrowers vary, there are types of loans to fit each borrowers situation. Residential rehab loans, loans for cashing out single family residences, rehab commercial loans, commercial loans, vacant land loans, construction loans, and acquisition loans are all common types of San Diego hard money loans.
6. If I need a hard money loan in San Diego, CA, what information will the lender ask for?
This question is two fold. The documentation varies depending on whether it is a residential or commercial loan.
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.
Documentation for a commercial property includes an application, an executive summary, a pro forma, an appraisal, each principals financial statements, and at least two years of income statements.
7. What is the interest rate on hard money?
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. What kinds of loan repayment schedules are available with hard money?
San Diego hard money loans can be made fully amortized, as well as interest only, balloon loans.
9. How long will the term of a hard money loan be?
The loan term will typically depend on the investor or funding entity. Generally speaking, the loan terms for private and hard money are short in duration. Anywhere from 1-5 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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