The topic of hard money and how it works, is frequently a point of discussion when talking about private financing. First, hard money is frequently 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.
When working with private money loans it is important to understand the general guidelines. Because private loans are based on equity lending, it is essential that the loan in question have a low loan to value(LTV) ratio.
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.
In addition, the ability of the borrower to repay the loan must be shown. These loans are justified by the borrower's capacity for repaying the loan and the presence of strong collateral.
The type of transaction will govern the terms,as a result fees and rates will vary from transaction to transaction.
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 typical guidelines for private money have been explained, some different types of transactions will be explored.
1. Purchase Transactions - When structuring these types of loans, the lender will scrutinize the purchase agreement and the appraisal for the property in question. The appraisal will be the basis for value and the purchase agreement will determine the market and subsequently create a foundation for the transaction.
It is important to note that the loan amount and LTV will be based off of the purchase price or appraised value, whichever is LOWER. This is because of the reasoning that the true value is determined by price. In case of a purchase, ultimately, price is whatever the buyer and seller agree upon. Most lenders will assume this concept unless there is an extreme discount that can be shown and proven by the borrower.
The other aspect that differs with purchases is that the borrower must bring in to escrow the down payment and any fees charged. This is different because in refinances the fees are typically financed into the overall loan amount.
2. Refinance Loans - The refinance loan differs from the purchase loan because the lender's top concern is established value and respective loan amount. As a result, the lender will want to review the appraisal and any existing liens. Different that purchase transactions, fees are tied into the loan when dealing with a refinance transaction. The fees are added to the amount the borrower gets after paying off existing loans or obtaining cash out.
3. Development/Construction Loans - This loan has three separate features. The LTV is usually contingent on the future value. The funds are distributed according to a draw schedule.
Lastly, money is put aside for the repayment while the construction is being done by setting up an interest reserve account at inception. These are the three ways a development loan differs from other types of hard 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.
More specific documentation might include; purchase agreement, executive summary, construction breakdown, and draw schedule. With most private money loans you are usually looking at 7-14 business days from lender receipt of the entire loan package. These times may vary depending on the complexity of the transaction.
Ideally, you conceptually understand what it is required to get a San Diego hard money loan. After all, this is the best way to get the money you need in a short time for a non-traditional project. - 30462
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.
When working with private money loans it is important to understand the general guidelines. Because private loans are based on equity lending, it is essential that the loan in question have a low loan to value(LTV) ratio.
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.
In addition, the ability of the borrower to repay the loan must be shown. These loans are justified by the borrower's capacity for repaying the loan and the presence of strong collateral.
The type of transaction will govern the terms,as a result fees and rates will vary from transaction to transaction.
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 typical guidelines for private money have been explained, some different types of transactions will be explored.
1. Purchase Transactions - When structuring these types of loans, the lender will scrutinize the purchase agreement and the appraisal for the property in question. The appraisal will be the basis for value and the purchase agreement will determine the market and subsequently create a foundation for the transaction.
It is important to note that the loan amount and LTV will be based off of the purchase price or appraised value, whichever is LOWER. This is because of the reasoning that the true value is determined by price. In case of a purchase, ultimately, price is whatever the buyer and seller agree upon. Most lenders will assume this concept unless there is an extreme discount that can be shown and proven by the borrower.
The other aspect that differs with purchases is that the borrower must bring in to escrow the down payment and any fees charged. This is different because in refinances the fees are typically financed into the overall loan amount.
2. Refinance Loans - The refinance loan differs from the purchase loan because the lender's top concern is established value and respective loan amount. As a result, the lender will want to review the appraisal and any existing liens. Different that purchase transactions, fees are tied into the loan when dealing with a refinance transaction. The fees are added to the amount the borrower gets after paying off existing loans or obtaining cash out.
3. Development/Construction Loans - This loan has three separate features. The LTV is usually contingent on the future value. The funds are distributed according to a draw schedule.
Lastly, money is put aside for the repayment while the construction is being done by setting up an interest reserve account at inception. These are the three ways a development loan differs from other types of hard 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.
More specific documentation might include; purchase agreement, executive summary, construction breakdown, and draw schedule. With most private money loans you are usually looking at 7-14 business days from lender receipt of the entire loan package. These times may vary depending on the complexity of the transaction.
Ideally, you conceptually understand what it is required to get a San Diego hard money loan. After all, this is the best way to get the money you need in a short time for a non-traditional project. - 30462
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