How Does Hard Money Work In San Diego?
The topic of hard money and how it works, is frequently a point of discussion when talking about private financing. First, hard money is frequently 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.
If you will be working with hard money loans it is a good idea that you learn how they work. They are based in part on the value of the property. Therefore the loan to value (LTV) must be low.
Most of these loans are written for 65% LTV or lower, which means the loan amount must be 65% or less of the total value of the property. The property is going to have to be marketable. Some private lenders and investors will consider a property that has a low enough LTV even if it is in an area that is not as marketable if the risk is low enough.
Also, the person seeking the loan must have the ability and means to repay the loan. The stronger the collateral and the ability of the borrower to make payments will usually make a hard money loan worthwhile.
The type of transaction will govern the terms,as a result fees and rates will vary from transaction to transaction.
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 general guidelines have been established it is important to understand some of the varying information regarding the different types of 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.
At the end, the borrower must place into escrow the fees being charged and the down payment.
2. Refinance Loans – As opposed to a purchase loan, the investor will focus heavily on the appraisal, title which would show any existing liens, and the desired loan amount. These are the primary concerns of an investor funding a refinance loan. Refinance loans differ from purchase transactions because the fees are being financed in to the amount borrowed. Meaning that the fees are combined with the amount being borrowed after the payoff of current loans and any cash out.
3. Development/Construction Loans – This loan has three separate features. The LTV is usually contingent on the future value. The funds are distributed according to a draw schedule.
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.
Forget everything you thought you knew about California and San Diego Hard Money. These two websites Scottway Capital California Hard Money and California and San Diego Hard Money shatter all the current myths and gives it to you straight.
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