Hard Money loans in San Diego
When conventional real estate funding gets stricter, San Diego hard money loans look more attractive. It’s the little private money lenders like us who benefit. The man or woman (the investor) who has been successful in their non real estate business benefits by earning interest much greater than they can get in a bank. These are the people who don’t want to gamble in the stock market. The broker brings the investor and the borrower together.
What is the process?
After going through the gruelling process of submitting tax returns, getting pay check stubs and scrutinizing your credit to death, they eventually get turned down and turn to some one like us. Borrowers submit the same 1003 application but we don’t go over the information on the app with a fine tooth comb like the regular lenders do.
Private money lenders care more about the asset itself than how high their FICO score is or what it stated on their tax return. Our loans usually go up to 70% loan to value and sometime 75%. On an FHA loan, the government sponsored program can give a loan with only 3.5 % down payment thus creating a loan to value in the high 90’s.
Usually these private money loans come with a balloon payment in 1 to 5 years. Some of them have a strict pre-payment penalty and others no penalty. If the borrower fails to pay the mortgage, the private money lender can file a notice of default just like a regular lender would do.
As far as defaults go, there are not too many defaults because the borrowers have too much “skin-in-the-game.” Meaning, they have a lot of equity weather they built it up by bringing in a substantial down payment or putting in a ton of “sweat equity” by improving the property dramatically with some major remodel improvements. Many times its both, the larger than normal down payment AND the improvements.
Why not take the 3.5% down payment?
In a perfect world, most everyone would rather pay 3.5% down than 30% down. FHA financing or other government sponsored financing require that all of your documentation and conditions be perfect or near perfect. Not everyone can meet their standards so many turn to private money lending which is available to all types of borrowers. Along with the tiny down payment, the interest rates on these types of loans are lower as well. But as with anything that sounds wonderful, the previously mentioned requirements prohibit many from doing this.
When buyers are fighting over a property in today’s sellers market, sellers will often choose the offer with the least loan resistance. The least resistance might mean they may take the private money loan instead of hoping and praying that the FHA, VA or conventional loan will get approved.
Hard money loans can close as soon as 7 days. No other loan process can do that. That becomes a very attractive loan source if you are seller who wants to sell quickly and a buyer who wants to make sure they can get the deal done.
Is it for you?
There are drawbacks and benefits to both conventional and private money loans. In conventional loans, you get lower interest rates and lower points. In private money loans, you get fast closings and don’t have to provide too much in the documentation department. Each borrower will weigh the pros and cons and decide on what is right for them.
What is your situation?