Are you familiar with the term ‘hard money loans’? These loans are very specific and are loans that come from private investors that typically have a lot of money to invest in real estate. Hard money lenders will loan money to people who can’t get loans from traditional institutions such as banks and mortgage companies. This can be due to any number of reasons, such as having a bad credit rating, a low-paying job or some other credit problem. Traditional lending institutions are very picky these days about who they will lend money to, while a hard money lender is not as strict.
Not surprisingly, hard money loans come with a higher interest rate than traditional loans do. After all, the lender is taking a chance on a person who has less than perfect credit. These loans are secured with the property, and usually the hard money lender is going to want to be the first name on the property lien. If the borrower defaults on the loan, then the hard money lender gets the property.
Typically, the amount of the loan will not exceed 70% of the property’s repaired value. This can be especially important if the person getting the loan is in the business of buying homes to fix up and then sell. If the house costs $30,000 to buy and will need $25,000 worth of work, the repaired value of the home will be $55,000. The amount of the loan would then be $38,500 which is more than enough to make all the necessary repairs to the home. So this type of loan is perfect for the investor who is just starting out in the house-flipping business.
These types of loans will also work if someone is trying to get a house built and can’t qualify for traditional financing for some reason. These lenders will lend money to people with a home in foreclosure, which no bank or mortgage company would touch, most likely. They will loan money to people who do not actually live in the home they are getting the loan for. Whatever the situation, these lenders are the last resort when traditional lenders have failed.
It is very important when you seek out a hard money lender to understand completely all the terms of the loan. Such things as interest, length of the loan and other issues can vary tremendously between lenders. Be sure to do some research before you sign anything. Check out the lender’s background with place such as the Better Business Bureau. Make sure the lender is reputable and doesn’t have a lot of complaints against him.
There are many ways to find a hard money lender in California. You can ask a mortgage company, a title company or a real estate agency for names. You can do an Internet search. Ask neighbors who might have recently gotten a loan. There are some lenders who will lend money on a national basis, so they do not necessarily have to be in your city. Again, be sure to check them out first before you agree to the loan.