Hard Money Loans vs. Conventional Investor Loans

If You Need Capital Fast a Hard Money Loan Can Be the Answer

 

There are a lot of misconceptions regarding Hard Money Loans and Hard Money Lenders. Most of the confusion surrounds the differences between conventional mortgages and hard money loans. I wanted to take a moment and try to answer many of the general Frequently Asked Questions as well as to compare a hard money loan to a Conventional non-owner occupied investor loan.

 

Frequently Asked Hard Money Loan Questions

How does the program work?

HMLs provide Real Estate Investors access to asset based capital. We can fund quickly, typically within 72 hours of receiving the final docs from the Title Company. Hard Money is available for adequately collateralized loans on single-family residential houses and other Real Property including commercial projects.

 

What is the interest rate?

The interest rate depends upon the Lender. The rate will range from 14% interest only to 18% interest only annual interest rate payable monthly in most cases.

 

What Loan-to-Value are MLS looking for?

Typically a loan does not exceed 70% of the after-repaired-value (ARV).

 

How long is the loan for?

HMLs typically write the notes from 6 months to 12 months depending on the Lender and your needs.

 

What are the costs?

Costs vary depending on which Lender you use. All loans will require at-least a Title Policy, Vacant Dwelling Insurance, Inspection, “As-Is” Appraisal & Flood Certificate. Most require origination points.

 

Can I get repair money?

Yes. Hard money loans can fund repairs. Hard money loans require a “Draw Request” form to be filled out to identify the completed repairs to the property, Copies of the invoices from the vendors. Then, we will pay you once the work is inspected-hard money loans do not pay in advance for any work.

 

Does my credit matter?

Yes and no. For the most part, hard money loans look at the value of the property after it is repaired, how much you are paying for it, and how much the repairs will cost to determine how much we will lend. In some cases, with your consent some hard money lonas may need to checkout your credit history.

 

How do you decide how much to loan?

Typical loans range from $25,000 to $1,000,000: All loans are considered on a case-by-case basis. Each hard money loan has their own criteria.

 

Do hard money loans need an appraisal?

Yes, hard money loans require “as-is” and “as-repaired appraisals”.

 

Do hard money loans require inspections?

Yes, hard money loans require inspections including the interior before funding and before a repair draw to ensure the work is completed in a satisfactory manner.

 

Do I need to put any money down?

In most cases, Yes. Most hard money loans want to ensure that you have enough resources to finish the repairs and cover the costs of the loan plus any surprises. Therefore most hard money lonas require that origination/discount points and other required items be paid at or before closing. We are confident that if you cannot afford to close you typically cannot afford to take out this type of loan.

 

How much will my payments be?

To figure your monthly payment simply, multiply the rate by the loan amount and divide that number by 12.

 

Will hard money loans finance commercial properties?

Yes, many hard money loans will on a case-by-case basis finance commercial properties and then only if the loan is secured by improved real property such as the building and land.

 

Will hard money loans finance apartment buildings?

Yes, many hard money loans finance apartment buildings however understand that it will take us longer to get our due diligence done.

 

Do hard money loans allow interest to be deferred to the end of the loan?

Some hard money loans do. Most however have interest payable monthly. Again, we are confident that if you cannot afford to make monthly interest payments you typically cannot afford to take out this type of loan.

 

How do hard money loans compare to a traditional non-owner occupied investor loan?

You might be surprised how competitive hard money loans really are. Take a look at this comparison;

 

Comparison Matrix:

Hard Money Tradtional Lender/Mortg. Co.

Time to Close 1 – 2 weeks 4- 6 weeks

Monthly Payment ($100k loan) $1166.66 @ 14% I/O $1098.00 @ 7% + MI

Credit Qualifications None – 65% of ARV Yes – Varies

Cost to Obtain Loan 4% – 5% 3% – 6%(Incl. Orig. Fees & SRP)

Pre-Payment Yes – 3 mo. min Yes – Up to 2 years

 

In many cases an hard money loan can be obtained faster and easier then a conventional loan and while in almost all cases the amount you can borrow from a hard money loan exceeds the amount you can qualify for from a convention lender the cost difference is minimal. Hard money loans are not for everyone and every hard money lender has a different program and qualification process. However if you need fast access to capital for REI then a hard money lender such as California Private Money Lenders may be your new best friend. Give us a call at 707-315-1119 or fill out our Borrower Form or Contact Form and one of our hard money loan specialists will be in touch promptly to answer your questions.

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The Difference Between Pre-Qualification & Pre-Approval

Why These Terms Are Different

Although the terms Pre-Qualification and Pre-Approval are often used interchangeably, the two differ greatly in the process involved in obtaining them and in the benefits they provide. Here’s what you need to know about each of these terms:

 

Loan Pre-Qualification:

This is a lender’s informal way of estimating how much you may be able to borrow. It is based on the information you provide, often by phone, none of which needs to be verified or documented. Since a letter of pre-qualification gives you an idea of how much house and the amount of mortgage payments you can afford, the best time to get pre-qualified is as soon as you decide you want to buy a home.

You supply to the lender unverified information about your income, assets, debts, and possible amount of a down payment. There is no cost involved in obtaining pre-qualification, and there is no commitment for either party. Understand, however, that a letter of pre-qualification does not mean you will get a loan; it is simply a ballpark figure of the amount you can afford to spend on your home and an indication that you might qualify for a mortgage in that amount.

 

Loan Pre-Approval:

This designation is a firmer commitment on the part of the lender and requires a more detailed and formal process which includes a credit check and employment verification. You will need to provide W2’s, pay stubs, tax returns if you are self-employed, and bank and investment statements to verify your assets.

While this process is more detailed and complex, it is definitely worth your time and effort! Not only does it allow you to shop for Jersey Shore homes with more financial confidence, pre-approval also shortens the actual loan application process and often allows for quicker settlement. In addition, sellers appreciate the fact that pre-approved house hunters are serious about buying their property and that financing should not be a problem. This was shared by a East Coast Broker and Lending Firm.

 

We breakdown the basic differences between pre-qualification and pre-approval below:

Loan Pre-qualification:

  1. Informal collection of data
  1. No documentation required
  1. Verification not done by lender
  1. An estimate of the amount you might be able to borrow.
  1. Not an entitlement to a loan; simply the first step in the home buying process.

 

Loan Pre-approval:

  1. Comprehensive collection of data
  1. Documentation required
  1. Verification is done by lender
  1. Certification of how much money the lender would most likely be willing to loan you
  1. Not an absolute guarantee of financing. Funding won’t be given until after the property appraisal, title search, and any other items needing verification have been completed.

 
The best way to understand how we can potentially help you with your your private money loan is to give us a call. We can discuss your specific home buying needs and we offer personalized service and pricing. Call us today at 707-315-1119, or fill out our borrower form or contact form to learn more about our California private money loans and what California Private Money Lenders can do for you.

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