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This question is often asked more than any other when talking about San Diego Hard Money. To start, hard money is also commonly called private money.

In this article you will learn about a San Diego hard money loan and the different aspects it takes to complete one. Refinance loans, development loans, purchase transactions and processing of the loan will be explained.

When working with private money loans it is important to understand the general guidelines. Because private loans are based on equity lending, it is essential that the loan in question have a low loan to value(LTV) ratio.

The LTV is normally written at 65% or under. This means that the amount loaned when compared to the value must be under 65%. Also, the condition and value of the property is considered. A property that is in a less desirable traffic area may be considered by private lenders and investors as long as the LTV was very low in order to minimize perceived risk.

Also, the person seeking the loan must have the ability and means to repay the loan. The stronger the collateral and the ability of the borrower to make payments will usually make a hard money loan worthwhile.

The type of transaction will govern the terms,as a result fees and rates will vary from transaction to transaction.

For some general insight, rates will vary anywhere from 9-15% depending on lien position, property type and overall risk of the transaction. The terms written are typically much shorter than conventional loans with terms ranging from 1-3 years on average. Fees will typically be anywhere from 2 to 4 times that of conventional loans.

Now that typical guidelines for private money have been explained, some different types of transactions will be explored.

1. Purchase Transactions – In this transaction an investor and lender will examine the appraisal and the purchase agreement very closely. This will be a priority for the lender when setting up this type of loan. The purchase agreement will communicate the market and form the base for the transaction. Complimented by the purchase contract, the appraisal gives the lender a sense of worth about the property.

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.

At the end, the borrower must place into escrow the fees being charged and the down payment.

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 Loans – The construction loan or the development loan has three basic features. The LTV often is contingent upon the future value of the property. The funds are distributed according to a draw plan.

And lastly, an interest reserve account is usually set up so that money has been set aside upfront for the repayment of the loan during construction period. These three things make a construction loan or development loan different than most other hard money loans.

Documentation will be required depending upon the loan that is being sought. Usually what will be required is the standard docs, while more specific information may be required. The standard package may include the title policy, appraisal, income documentation, borrower’s application, bank statements and the borrower’s credit report.

If detailed information is required it may include a construction breakdown, draw schedule, purchase agreement and executive summary. The private money loan is usually drawn up in about 7 to 14 days after the lender receives the loan package. This time may be more or less depending on the transaction itself.

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.

You’ll never have to worry about San Diego Private Money again! Visit us on the web at ScottwayCapital.com or at San Diego Private Money to learn more.

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