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.

The security for these loans is a considerable equity position in the real estate being financed. This means the L.T.V., or loan-to-value ratio is lower than a conventional loan.

2. How does it differ from a conventional/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.

A borrowers income and credit history are still important considerations in creating a hard money loan. However, the most weight is given to the collateral, which is the equity in the underlying real estate.

In California (this may very state to state), the instrument by which a borrower pledges their property as collateral is called the Trust Deed.

The primary difference between bank loans and hard money or private loans is that the lender requires a larger equity position as collateral in San Diego hard money loans.

3. Are commercial properties and residential properties both eligible for hard money loans?

Absolutely! Hard money can be used for any type real estate: single family homes, land, apartments, industrial buildings, office buildings, and retail stores.

Commercial real estate is a very different animal from residential real estate. How the overall value and the resulting equity is determined in a commercial property is different than how they are determined in a residential property. However, the steps in processing a hard money loan are very similar for both classes of real estate.

4. Am I able to borrow California hard money if I have a bad credit score?

Most often, yes! As mentioned earlier, private money lenders still need to look at your credit report regardless of the project.

Here are the two reasons why even a private money lender will look at your credit score. Firstly, they want to know your monthly debt load.

Secondly, they will assess your overall risk by judging the relative strength of your credit historically.

Usually, your qualification for a loan will hold if the collateral and income portions of your package are within guidelines.

5. Hard Money Loans: Are there a variety of different types of loans?

Commercial loans for purchase and renovation, scheduled new construction loans, single family loans for refinancing and rehabilitation, and raw land acquisition loans are just a small sampling of the scenarios where San Diego hard money can be used.

6. What will I need to give to my California hard money lender if I want to apply for private money loan?

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.

Commercial: Application, Executive Summary, Pro Forma, Appraisal, Principals Financials, 2 Years Proof of Income.

7. How much does San Diego hard money cost?

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.

Interest rates in the range from 10% to 15% are not uncommon. The interest rate a particular private lender charges will depend on the repayment terms of the loan, credit history, whether the loan will be senior or junior, and the condition of the improvements.

8. Are all hard money loans balloon loans?

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?

This is an issue that is up for negotiation. It will not hurt to ask for terms that do not include a prepayment penalty. Each lender will consider this request in light of the overall strength of your loan package.

What you just learned about San Diego California Hard Money is just the beginning. To get the full story and all the details, check us out at Scottway Capital Hard Money and at San Diego California Hard Money.

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