When purchasing real estate, financing is often required. Few people have the capital to buy a piece of property outright, so most must turn to the bank. Unfortunately, for some borrowers, traditional financing is not an option. In such cases, borrowers must look for more unique forms of financing.
If you are looking for an alternative real estate loan that offers a short term and flexible qualification requirements, you may be interested in a hard money loan. Hard money loans are ideal for borrowers who can’t qualify for traditional financing and/or need to get a loan faster than normal. These loans are typically shorter in length than a standard real estate loan, and because of their nature, they won’t require you to jump through as many hoops. In addition, they can be approved much more quickly, allowing you to close on your property faster. Hard money loans are a common choice among real estate investors.
Hard money loans differ from other types of real estate loans. Because of their differences, these loans offer both advantages and disadvantages for borrowers. While some borrowers may benefit more from other types of financing, hard money loans are the best choice for people in certain situations. However, it is important to note that hard money loans are not the same from every lender. For this reason, finding the right lender for your specific needs is essential.
In order to find the right lender for your needs, you must first understand the basics of hard money lending so you can determine whether a hard money loan is the best type of financing for you. You will also need to assess your own needs and preferences with regard to your loan. Finally, you will need to refer to this information as you compare different California hard money lenders and the loans they offer. Lenders differ with regard to the maximum amount they will finance, the length of their loans, the fees they charge, the interest rates imposed, the qualifications for the loan and other factors. Remember to take all these factors into account as you compare your options. It is also a good idea to consider the reputation of the lender, as well as the customer service offered when making your choice. Below is some information to help you begin your journey to a hard money loan in 2020.
What is Hard Money?
Hard money is an option available to borrowers who cannot or do not wish to use a traditional mortgage lender. These loans are based primarily on collateral, as opposed to the borrower’s documented ability to repay the loan. When loans need to happen very quickly, or when borrowers don’t have the ability to meet the requirements of a traditional mortgage, hard money may be the only viable option.
With a traditional mortgage loan, much of the approval process hinges on your ability to prove that you have the income and/or assets to repay the loan over a long term. The most common terms for traditional mortgage loans are 15 years and 30 years, so lenders want to be sure you have the resources to make all of your payments on time. They also want to be sure that your other debts won’t make it hard for you to keep up with what you owe, so you will be required to show that your debt-to-income ratio falls within certain established limits.
Hard money loans, on the other hand, usually have a term lasting anywhere from one year to five years. As a result, hard money lenders are not as concerned with making sure you have the ability to repay the loan for many years. Instead, they pay more attention to the value of the collateral. Should you become unable to make your loan payments, the lender will seize the property used as collateral and sell it to cover the remaining balance.
Hard money loans offer many advantages over other types of financing. Specifically, you can obtain a hard money loan faster than a traditional mortgage. Hard money loans also have fewer qualifications, so you can obtain the financing you need even if you don’t have a perfect credit score and/or the documented income necessary to qualify for the same amount on a traditional mortgage. Likewise, because there are fewer requirements for a hard money loan, the approval process is typically less arduous and won’t require as many documents.
Although hard money has its advantages, there are drawbacks to mention as well. Hard money loans usually have higher interest rates and fees than traditional mortgage loans. In addition, some hard money lenders may not be reputable. For this reason, it is important to use great care when comparing hard money lenders in California.
Benefits of Hard Money Loans for CA Real Estate Investors
Hard money loans offer several notable benefits that make them an excellent choice for real estate investors. Some of these benefits include:
- Faster approval time – As an investor, you may need to obtain a loan on short notice. If you are trying to secure a traditional mortgage, this is nearly impossible. It takes weeks or even months to get through the traditional mortgage financing process. By the time you have the loan you need, the property you want to purchase may have already sold to someone else. Hard money loans, on the other hand, can be approved much more quickly.
- Fewer requirements – Hard money loans don’t have as many requirements as traditional mortgage loans, so qualifying for them is much easier. This is particularly beneficial for real estate investors, as investors are often unable to meet the requirements of a standard mortgage loan. Because of the nature of hard money loans, lenders aren’t as concerned with your ability to repay. Instead, you will simply need to prove that the collateral in question is worth enough to secure the loan.
- Stronger offers – When you have a hard money loan, offers you make on properties you hope to purchase will be stronger. This can be especially helpful when you are vying for a property that has multiple interested parties. In these cases, sellers often choose the strongest, most reliable offers.
- Better negotiation skills – Hard money loans can usually close much faster than other types of financing. For this reason, you have a stronger negotiation position. In some cases, this will allow you to purchase the property for a lower price.
- Flexibility – Most types of financing are rigid and involve many regulations, timelines and other stipulations. Hard money loans are much more flexible and can be modified to meet the needs of the real estate investor.
- No loan limits – Even if you are able to qualify for other types of financing, many banks limit the number of loans they will issue to a single borrower. Hard money lenders don’t typically have these types of limits, making it easier for you to get the financing you need quickly.
These are just a few of the benefits that make hard money loans an appealing choice for real estate investors. In fact, for many real estate investors, hard money loans are the only viable financing option.
Typical Interest Rates for Hard Money Loans in California
A loan’s interest rate is one of the fees the lender charges as compensation for making the loan. Whenever a lender approves a loan, the lender is taking a risk. The more substantial the lender’s risk, the higher the interest rate will be. Higher risk loans are more likely to go into default, so the lender charges a higher interest rate in order to make up for the increased chance of financial loss.
Hard money loans come with a higher risk for the lender than other types of loans. As a result, the interest rate charged will be higher than the interest rate on a standard mortgage loan. Depending on the lender and the situation, the interest rate may be as high as 15 percent or even more.
The interest rate charged on your hard money loan will depend on a number of different factors. When determining your interest rate, lenders may consider:
- The value of the collateral – If the value of your collateral is high compared to the loan amount, you may qualify for a lower interest rate.
- The size of the loan – Some lenders may vary the interest rate based on the size of the loan. Ask your lender if the size of your loan will impact your interest rate.
- Your credit score – In many cases, it is possible to qualify for a hard money loan without a high credit score. However, the higher your credit score, the lower your interest rate will be.
- Your income and assets – Hard money loans don’t require you to prove your income and assets in the same way as other real estate financing options. However, if you are able to prove significant income and assets, you may be able to lower your interest rate.
- The market – Like all types of real estate financing, hard money loans have interest rates that vary based on fluctuations in the market. When interest rates are higher overall, interest rates charged on hard money loans will increase in response.
While some California hard money lenders determine your interest rate based on a careful analysis of your case, others charge standard interest rates for their loans. The best way to find out what you can expect to pay for a hard money loan is to talk to a lender about the specifics of your financing needs.
Choosing the Right Lender Based on Your Business’ Purpose
Hard money loans offer a wide variety of benefits for real estate investors and other borrowers who cannot use other forms of real estate financing. However, it is important to remember that not all California hard money lenders are the same. For this reason, it is important to take extra care when selecting a lender to handle your real estate financing.
To choose the right lender for your needs, you must consider a variety of characteristics and factors. Some of the issues to consider as you compare lenders include:
- Reputation – A lender’s reputation gives you insight into the experiences of past customers. If possible, choose a lender who has a reputation for providing good quality customer service and reliable loans with fair terms.
- Fees – Different lenders will charge different fees for their hard money loans. To ensure that your loan is affordable as possible, it’s a good idea to compare the fees different lenders charge before you make a choice.
- Typical clients – Some hard money lenders specialize in working with a specific type of client. Finding a lender who focuses on the niche in which you operate may help the process run more smoothly. For example, if you are a real estate investor, consider looking for a hard money lender that works with other real estate investors.
- Responsiveness – Many borrowers looking for a hard money loan are in need of quick financing. If you want your loan to close as quickly as possible, you need a lender known for responsiveness. When comparing different lenders, pay attention to how quickly lenders respond to your inquiries.
- Requirements – Hard money lenders have fewer qualification requirements than traditional real estate lenders. However, some requirements will still apply. Be sure to ask about the requirements you will need to satisfy before you can obtain your requested loan when you are comparing different lenders.
When it comes to choosing a hard money lender, making a decision can be difficult. However, because the stakes are so high, it is important to make the right choice. The best way to make sure you have chosen the California hard money lender who is right for you is to talk to prospective lenders. Ask about all the different issues listed above and then select the lender who offers the best fit.
Why Clients Choose Us
Barrett Financial Group is proud to offer hard money loans to borrowers throughout California. As an established lender, we have the experience and expertise necessary to provide superior service to our clients. We offer all types of hard money loans, making us the perfect choice for almost any borrower. Some of the reasons our clients choose us include:
- A variety of products – Barrett Financial Group offers a variety of loan products, including bridge loans, refinances, rehabs, fix and flips, credit repair, building loans and auction loans.
- Knowledge – Barrett Financial Group is staffed by a team of experts who know how to help you complete your loan as quickly and efficiently as possible.
- Dedication – At Barrett Financial Group, we care about our clients’ needs, goals and future. We are not out to make as much money as possible on our loans. We work to ensure maximum value for every client.
- Customer service – When you work with Barrett Financial Group, you can count on our team to provide you with support and assistance through every phase of the application, approval and closing process. If you have questions or concerns at any time during your loan’s processing, we will be quick to provide the answers you need.
- Expansive service area – We serve clients in a variety of areas throughout California, including Inland Empire, Los Angeles, Northern California, Orange County, San Diego and San Francisco Bay.
- Quick funding – Barrett Financial Group offers loan programs that can fund loans quickly, allowing you to get the financing you need when you need it. In fact, we can fund some loans in as little as 24 hours.
- Few requirements – When you choose Barrett Financial Group as your hard money lender, you won’t have to jump through many hoops. We accept clients who have bad credit, and we will fund your loan solely based on the value of your asset. We don’t require extensive income documentation and will approve your financing based on stated income only.
- High lending limits – Barrett Financial Group generally provides loans with a loan-to-value ratio of up to 85 percent. Up to 90 percent financing may be available in some cases.
If you are interested in learning more about the hard money lending options available from Barrett Financial Group, please contact us today at 858-780-5162 to get started. One of our trained hard money lending specialists will be happy to discuss your needs and help you select the loan program that is best for you.