When we don’t have enough to buy something, to pay a debt or in case of an emergency, many people have no alternative but to apply for a loan.
Add to this the fact that, unless you have excellent credit, you may be unlikely to get a loan from the bank. Banks have accumulated bad loans in recent years due to loose loan practices. Now rigorous criteria have been established. Real estate investors have limited financing options.
And this is where hard money lending companies enter the scene.
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How Can a Hard Money Loan Help You?
Hard money lenders focus on your assets, not your credit. They are faster than banks – the process can be as short as usually 7-14 days – and avoid all the inconveniences that banks tend to give. You will not find appraisals or other costs.
All you get is the standard opening commission so that the company can make its control over you. There are also no scams of the loan committees or subscription processes.
In short, with hard money lenders in California, all that you should present is the confirmation of your responsibility. You will sign a commitment letter, fill out a few applications, and the acceptance that your property will be used in loan lien.
Given the bustling hard money loan market in California, you will find several financial institutions that approve you in 1-2 days.
By the way, this ability to get a quick loan raises your advantage when investing. We often find ourselves bidding in a competing market. Other business owners might have to go slow with their conventional financing.
But with your ready-to-hand money, you are more likely to get the attention of a borrower and to adjust your offer apart from the rest.
What Are the Disadvantages of Hard Money Loans?
You will have to pay higher interest than for standard loans – sometimes double at most – and higher opening fees. This is because hard money loans take more risks with their investments, compared to a conventional bank loan. They also work harder to facilitate investments.
For-profit, they increase the interest rate by 10-15% concerning the particular lender and the noted risk of the investment. Points can vary from 2-4% of the total amount borrowed. Both interest rates and locations vary depending on the loan-to-value ratio. Therefore, shop around.
When Should You Go for a Hard Money Loan Option?
If you have a bad credit history (or similar issues), but you want to land a fast building and rehabilitation before the market turns around, hard money loans might be your best wager.
Real estate investors tend to enter into these types of loans, as they can often borrow up to 100% of the purchase loan!
You may also want to play with a combination. Some borrowers usually practice using this type of loan to buy the property quickly, renovate it, and then increase its value. Then, they get a standard loan (based on the new value of the property, improved) to pay off their original.
On the other hand, I would not advise that hard money loans for long-term investments be taken into account. In other words, if you have only a unique opportunity to buy a property, to quickly turn it over for quick profit, and you cannot get a standard mortgage – hard money loans might present the best possible way.
How to Know What the Hard Money Lending Company to Select?
There are several ways that you can discover a trustworthy, hard money company. You can Google[+] your “hard money lenders” zone.
Alternatively, you can attend a meeting of the club of real estate investors, where you are very likely to hit one or more of these lenders in search of potential borrowers like you.
You can also take advantage of their networks to get recommendations.
So Why Are There This Many Hard Money Companies in California?
California is one of the few states that is a “non-judicial foreclosure status,” – which means that the lender can get control of the underlying property quickly enough to be repaid (as long as the property in question is not owner-busy).
At the same time – California, vast and rich – has a large number of properties and developers. This creates excellent conditions for the hard money lending market.
As for the borrowers, this makes it profitable for you, too, because it allows you to make purchases for the lowest rates. Interest rates and periods imposed for hard money loans may differ from one company to another and may also vary from province to province.
For this reason, hard money loans in California commonly have more economical charges than other parts of the United States because California has numerous hard money loan corporations.
The increase in competition leads to a decrease in prices. This increased competition also allows you to bid for faster times and to find your best match. Therefore, start looking around till you discover the lender that suits your case the best.
Higher interest rates on bridge loans can be scary at first, but the benefits of obtaining financing when all banks have said “No” far outweigh the additional cost.
Hard money loans in California are today the most attractive way of obtaining loan once all the sides have rejected you. Additional info that will be of use is that in the last 24-36 months, interest rates have generally decreased.
In fact, they are the lowest in two years! Borrowers may not know that after paying their debt on time during this time, they have improved their creditworthiness. This could allow them to refinance their “Hard Money” loan on loan with a significantly lower interest rate than their current mortgage.
That can save the borrower hundreds of dollars and, in some cases, even thousands of dollars a year. In other cases, borrowers can refinance at a lower interest rate, withdraw cash, and still have a lower monthly payment than they had previously.