Moe’s B2B World

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.

Below you will find a discussion about the policies of San Diego hard money, and the details of obtaining construction loans, purchase transactions, refinance loans and the overall procedures pertaining to a hard money loan.

Typical ideas associated with a private money loan must be explained. The private loan must have a low LTV (loan to value) ratio. This is due to the basis of the loan being weighed upon the equity available for the property being promised as collateral.

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.

Rates, fees and terms will vary greatly depending on the transaction.

As a general rule, the rates are usually anywhere from 9 to 15% according to the risk of the loan, the type of property being used for collateral and the lien position. Unlike a bank loan, the terms for this type average from 1 to 3 years. However, the fees are double or even four times the fees charged for a typical loan.

Now that general guidelines have been established it is important to understand some of the varying information regarding the different types of transactions.

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.

The amount of the loan, as well as the LTV, will be decided by using the appraised value or the purchase price, whichever is lower. This follows the theory that price determines the true value. The price is usually an arms-length agreement between a buyer and seller. Lenders will use this as a general model barring of course situations where true value is significantly higher that agreed price. If this is the case then a lender would usually need proof from the borrower that there is actually additional equity available upon purchasing the property.

Another way that purchase loans differ from typical transactions is the borrower must set aside the down payment and fees into an escrow account.

2. Refinance Loans – As opposed to a purchase loan, the investor will focus heavily on the appraisal, title which would show any existing liens, and the desired loan amount. These are the primary concerns of an investor funding a refinance loan. Refinance loans differ from purchase transactions because the fees are being financed in to the amount borrowed. Meaning that the fees are combined with the amount being borrowed after the payoff of current loans and any cash out.

3. Development/Construction Loans – These types of loans have three distinct features. First, the LTV is often based off of a future value. Secondly, there is typically a draw schedule that mandates how funds are distributed.

And last but not least, an account called an interest reserve account is opened for the money to be deposited for repayment during construction. This is what makes a development loan different than other private money loans.

When seeking a hard money loan you will have to provide documentation that is typical for these type of loans and possibly more detailed documentation contingent upon your situation. The typical documentation would be bank statements, title policy, income documentation, appraisal, borrower’s credit report and the borrower’s application.

Detailed documentation can include a draw schedule, purchase agreement, construction breakdown and the executive summary. Depending upon how complex the loan is going to be, it can take anywhere from 7 to– days for a typical private money loan.

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.

Finally! The whole unbiased truth about San Diego Private Money Lending exposed. You owe it to yourself to get the facts today by visiting San Diego California Hard Money and San Diego Private Money Lending.

This entry was posted on Tuesday, December 1st, 2009 at 2:25 am and is filed under Business.You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.