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3 Things To Look For In California Hard Money Lenders

California Hard Money Lender Meeting with Clients

What do you think of when you hear the words “hard money loan?” Do you envision shady characters conducting business in dark alleys and charging exorbitant interest rates? While a few bad apples have cast a shadow on some hard money lenders, if you do your due diligence, you shouldn’t have to worry about being taken advantage of. And believe it or not, there are reputable hard money lenders out there.

The Basics of a Hard Money Loan

A hard money loan is a short-term loan backed up by real estate. Generally, they are funded by private investors instead of banks. Terms are typically 12 months but can be extended to 5 years. Monthly payments consist of some principal and interest with a balloon payment at the end. The amount of hard money given is dependent on the value of the property. Most hard money lenders are concerned with the property’s value rather than the borrower’s credit. When a bank says “no,” a hard money lender says “yes.” Hard money loans come in handy when banks are not an option or the loan is needed for just a short time. They are ideal for land loans, flips and when a buyer has credit issues or when the borrower needs to act quickly. Hard money loans only take a day or two for approval compared to the typical 45-day wait with a bank.

3 Things to Investigate

When you’re looking at different California hard money lenders, there are three things to keep in mind.

First, take a look at the interest rates and points of the loan. The good news is that hard money lenders the El Dorado state of California tend have lower rates than in other regions in the nation. And that’s because there are so many of them in California.  California hard money lenders have to duke it out with each other in order to get your business.

One thing to note is that hard money lenders do take on more risk than banks. Hence, there will be higher interest and points compared to a bank. The interest rate should range between 10 to 15 % and points should range from 2 to 4%. These ranges depend on the loan to ratio value.

This is why the second thing you need to do is take a good look at the hard money loan to ratio value (LTV). “The loan amount is determined by the ratio of loan amount divided by the property’s value.” You can expect a hard money lender to lend up to 75% of the property’s value. California hard money loans will be based on the value of the property after improvements. But then, you can expect the interest rate to be higher.

Knowing what the hard money lender requires for the loan is the third factor that you need to look at. As mentioned previously, most hard money lenders are not that concerned about the borrower’s credit. If you have the capital to pay the interest on the loan, previously problems such as foreclosure may be overlooked. The hard money lender will also want to know your plan for the property, so be prepared to have one in place. The plan should outline how you intend to pay off the loan.

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