Hard Money Loans in the San Francisco Bay Area
You may have heard the terms, “hard money” and “private money”. They both mean the same thing; hard money is the term used most often, but private money sounds nicer. Both are used extensively in specific instances of real estate investing.
But what is hard money? How did it come to be known as hard or private money? Who are the hard money lenders in real estate? What are the different types of private money loans? And how do you go about getting a loan from one of these non-traditional lenders?
These questions and few more will be answered in the paragraphs that follow.
What is “hard money”?
According to Wikipedia, “a hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by the value of a parcel of real estate.”
In short, a hard money loan is an asset-backed loan, not unlike a traditional mortgage, that is often sought by an individual who owns a distressed property or who may experiencing a financial hardship.
Who are the hard money lenders in real estate?
There are 3 basic hard money lenders:
- Private individuals that have capital available and want a higher-than-market return on their investment.
- Private money funds run by a fund manager specializing in non-traditional loans based on real estate.
- Mortgage brokers who source lending funds from individuals, non-traditional institutions like insurance companies, and other miscellaneous sources.
What are the different kinds of hard money loans?
There are a variety of hard money loans available. Here are some:
Construction Loans
These are loans that are made specifically for the construction of new buildings. There are construction-only loans, owner-builder loans and construction-to-perm loans.
Fix n Flip Loans
A “fix n flip” loan allows you to purchase a property that needs to be remodeled, converted, and/or expanded. Also called “renovation loans”, this type of financing is ideally suited for borrowers who need fast funding or do not meet the lending criteria of conventional lenders.
Bridge Loans
According to Investopedia, a bridge loan is “a short-term loan that is used until a person or company secures permanent financing or removes an existing obligation. This type of financing allows the user to meet current obligations by providing immediate cash flow.”
Owner Builder Construction Loans
This type of loan is designed for owners planning to be their own builder in order to save money. Owner builders are also qualified licensed builders or contractors who want a construction loan that allows them to be their own homebuilder.
GAP Funding
Gap loans are a sort of bridge loan that makes up the difference between a first mortgage and another loan to cover the costs of a home build or renovation.
SAM Loans
This is a type of loan where both the borrower and lender share in any appreciation of real property.
How do you get a hard money loan?
Many hard money lenders or private money lenders are consistently looking for projects to lend. Hard money lenders want projects with a well thought out exit plan and they always want the borrowers to have some skin in the game. Hard money loans usually range from a six month to twelve month term and sometimes may be written for two or three years.
Credit issues? No problem.
Raising money for investment is often difficult. The situation is worse if you have a less than perfect credit record. Many real estate investors find themselves in a never ending battle of moving money around. A real estate investor needs to be exceptionally well informed about available finance options. Credit unavailability notwithstanding, hard money loans are exceptionally borrower oriented, and a few pointers should be all you need to raise the money you need for investment, purchases or home renovation.
Hard money loans are a good finance option. There are many hard money lenders in most cities, and a number of them have global presence. Before going to a lender you should have a statement of intent.
This is a concise and precise summary of why you need the money and how you will repay it. While hard money lenders do not tend to concentrate on your repayment history, they require information on where the money they are lending is going to be used and how you intend to repay it.
To expedite the processing of your application for a hard money loan, prepare up-to-date information relating to your business, investment plan or whatever the use for the loan will be. The borrower will need to have an estimate of the costs of the project as well as the length of time needed to complete the project. This presents you as a focused borrower who has a well thought out plan for the money. The hard money lender will take such a borrower seriously and you will have raised your chances of getting your hard money loan approved quickly. This is very important, particularly if your need is urgent, because not doing so could cause you to waste time while getting the lender your relevant information.
Get a private money loan
Typically, the lender will require an asset to secure your hard money loan. Most hard money lenders will lend you money based on the value of a parcel of real estate that you submit as collateral (security) for the hard money loan. The lenders will finance you even when you are in distressed financial circumstances such as foreclosure/bankruptcy proceedings on an existing mortgage. The downside is that the interest rates for hard money loans are usually higher than commercial or residential property loans.
However, on the upside, the processing of a hard money loan is rapid and approvals are usually issued with twenty four to forty eight hours upon receipt of a borrowers complete loan application package. Another advantage of a hard money loan is there are still checks on your credit score, bank balance, income or other aspects of your financial history, but the most weight for hard money loans is granted on the “collateral”. Hard money loans are processed with far less red tape compared to institutional lenders. Additionally, the money is usually available immediately on approval, allowing you to rapidly attend to the financial need that made the loan necessary. In the current market, you can borrow up to 70% of the value of your property.
A hard money loan could be the financial support you require to actualize dreams. With easy access, convenient requirements and rapid processing, hard money loans are worth considering when you are in financial need and require a quick solution.
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