1. What is a private money loan?
Private money loans, also referred to as hard money loans, represent a family of loans where the capital comes from a private source. Such sources can include any sort of private entity, like individuals, private corporations, and partnerships.
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. Conventional loans vs. hard money loans, what is the distinction?
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.
Although both aspects of the loan application are considered when doing a San Diego hard money loan, more emphasis is placed on the underlying piece of real estate that is pledged as collateral.
The equity in a piece of real estate is put forth as collateral using a document known as a Trust Deed. This is the most common instrument in San Diego, as well as most of California. Other instruments are available and they may vary depending on what part of the country you live in.
It is the size of this collateral, pledged by use of the Trust Deed, that forms the biggest distinction between conventional bank loans and private money financing. The private money lender will require that there will be substantially higher collateral than federally underwritten banks.
3. Are commercial properties and residential properties both eligible for hard money loans?
Yes! You can use hard money or private loans for residential homes or commercial property.
The procedures of doing the loan are similar but the concepts regarding the value and equity vary significantly between commercial and residential property.
4. My credit is marginal. Is hard/private money financing available to people like me?
Usually, without question! However, remember question 2. In any case, a hard money lender will consider your credit history.
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.
Another reason a San Diego hard money lender will consider your credit history is to determine risk. This is similar to the purpose of a credit report review by a conventional lender. However, the private lender will give less overall weight to this consideration.
Assuming the other aspects of your full hard money loan package are desirable, most private money lenders will still fund.
5. Is there more than one kind of hard money loan?
Absolutely! Since the needs of borrowers vary, there are types of loans to fit each borrowers situation. Residential rehab loans, loans for cashing out single family residences, rehab commercial loans, commercial loans, vacant land loans, construction loans, and acquisition loans are all common types of San Diego hard money loans.
6. If I wanted to get a hard money loan in California what would I need to provide?
This question is two fold. The documentation varies depending on whether it is a residential or commercial loan.
Documentation for a residence includes an application, at least two years of income statements, a credit report, an appraisal report, and current bank records.
Documentation for a commercial property includes an application, an executive summary, a pro forma, an appraisal, each principals financial statements, and at least two years of income statements.
7. At what interest rate can I expect to borrow hard money in San Diego?
The interest rate will vary depending on the transaction. For example, the type of property will affect the interest rate, commercial vs. residential.
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. What type of loan can I request?
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?
Loan terms from 1 to 5 years are not uncommon. Since the interest rates of hard money loans are higher than conventional loans, the length of the loans is typically shorter than conventional loans.
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.
To get all the latest tips, tricks, and tactics about using San Diego Private Money, be sure to visit us at Scottway Capital Hard Money San Diego, CA or at San Diego Private Money.
