This question is often asked more than any other when talking about San Diego Hard Money. To start, hard money is also commonly called private money.
This article will discuss the general guidelines of San Diego hard money, specifics pertaining to purchase transactions, refinance loans, development/construction loans, and the general processing of a hard money loan.
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.
Typically loans are written at 65% LTV and under. This would require that the loan amount, in comparison to the value, be under 65%. In addition, the property must be in marketable condition. Investors and private lenders may consider a property in a less marketable area as long as the LTV was low enough to offset the risk of lending the money.
Furthermore, the borrower who is taking the loan must be able to show the capacity and wherewithal to repay. Typically strong collateral, and a borrower's ability to repay will justify making a hard money loan.
As with any transaction, the fees,terms and rates will vary.
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 - The purchase transaction loan will require the lender to check the purchase agreement very closely. This will go for the appraisal as well. The appraisal is the way the value is determined. The purchase agreement is the determination for the market and the foundation of the transaction.
The amount of the loan, as well as the LTV, will be decided by using the appraised value or the purchase price, whichever is lower. This follows the theory that price determines the true value. The price is usually an arms-length agreement between a buyer and seller. Lenders will use this as a general model barring of course situations where true value is significantly higher that agreed price. If this is the case then a lender would usually need proof from the borrower that there is actually additional equity available upon purchasing the property.
Another way that purchase loans differ from typical transactions is the borrower must set aside the down payment and fees into an escrow account.
2. Refinance Loans - In contrast to purchase loans, lenders are concerned primarily with the appraisal, existing liens and corresponding loan amount. Different than purchase transactions, refinance loans are typically written so that the fees are incorporated in to the loan amount. To clarify, the fees are added to any amount that the borrower needs to net after cash out and/or repayment of existing loans.
3. Development Loans - The construction loan or the development loan has three basic features. The LTV often is contingent upon the future value of the property. The funds are distributed according to a draw plan.
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.
With all of these hard money loans, you will need some standard documentation, and possibly more specific documentation depending on the type of loan that you seek. Some standard documentation would include; appraisal, borrower's application, borrower's credit report, bank statements, income documentation, and a title policy.
Detailed documentation can include a draw schedule, purchase agreement, construction breakdown and the executive summary. Depending upon how complex the loan is going to be, it can take anywhere from 7 to 14 days for a typical private money loan.
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.
This article will discuss the general guidelines of San Diego hard money, specifics pertaining to purchase transactions, refinance loans, development/construction loans, and the general processing of a hard money loan.
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.
Typically loans are written at 65% LTV and under. This would require that the loan amount, in comparison to the value, be under 65%. In addition, the property must be in marketable condition. Investors and private lenders may consider a property in a less marketable area as long as the LTV was low enough to offset the risk of lending the money.
Furthermore, the borrower who is taking the loan must be able to show the capacity and wherewithal to repay. Typically strong collateral, and a borrower's ability to repay will justify making a hard money loan.
As with any transaction, the fees,terms and rates will vary.
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 - The purchase transaction loan will require the lender to check the purchase agreement very closely. This will go for the appraisal as well. The appraisal is the way the value is determined. The purchase agreement is the determination for the market and the foundation of the transaction.
The amount of the loan, as well as the LTV, will be decided by using the appraised value or the purchase price, whichever is lower. This follows the theory that price determines the true value. The price is usually an arms-length agreement between a buyer and seller. Lenders will use this as a general model barring of course situations where true value is significantly higher that agreed price. If this is the case then a lender would usually need proof from the borrower that there is actually additional equity available upon purchasing the property.
Another way that purchase loans differ from typical transactions is the borrower must set aside the down payment and fees into an escrow account.
2. Refinance Loans - In contrast to purchase loans, lenders are concerned primarily with the appraisal, existing liens and corresponding loan amount. Different than purchase transactions, refinance loans are typically written so that the fees are incorporated in to the loan amount. To clarify, the fees are added to any amount that the borrower needs to net after cash out and/or repayment of existing loans.
3. Development Loans - The construction loan or the development loan has three basic features. The LTV often is contingent upon the future value of the property. The funds are distributed according to a draw plan.
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.
With all of these hard money loans, you will need some standard documentation, and possibly more specific documentation depending on the type of loan that you seek. Some standard documentation would include; appraisal, borrower's application, borrower's credit report, bank statements, income documentation, and a title policy.
Detailed documentation can include a draw schedule, purchase agreement, construction breakdown and the executive summary. Depending upon how complex the loan is going to be, it can take anywhere from 7 to 14 days for a typical private money loan.
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.
About the Author:
Forget everything you thought you knew about California and San Diego Hard Money. These two websites Scottway Capital California Private Money and California and San Diego Hard Money shatter all the current myths and gives it to you straight.
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