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1. What is a private money loan?

Hard money loans, a.k.a. private money, are a type of loan funded by a private entity. This could be an individual, partnership or institution.

Unlike conventional loans from banks, where loan to value ratios can be as high as 97% (in the case of FHA financing), the LTV of hard money loans can be significantly lower, say 55-75%. This affords the private money investor with more security in the form of equity in the underlying property.

2. Conventional loans vs. hard money loans, what is the distinction?

Bank loans, or conventional loans, place most importance on a potential borrowers income and credit history.

Although both aspects of the loan application are considered when doing a San Diego hard money loan, more emphasis is placed on the underlying piece of real estate that is pledged as collateral.

The equity in a piece of real estate is put forth as collateral using a document known as a Trust Deed. This is the most common instrument in San Diego, as well as most of California. Other instruments are available and they may vary depending on what part of the country you live in.

The primary difference between bank loans and hard money or private loans is that the lender requires a larger equity position as collateral in San Diego hard money loans.

3. Are commercial properties and residential properties both eligible for hard money loans?

Yes! You can use hard money or private loans for residential homes or commercial property.

The steps taken to make a loan on commercial or residential real estate are similar. The concepts of value and equity between the two are significantly different.

4. My credit is marginal. Is hard/private money financing available to people like me?

Most often, yes! As mentioned earlier, private money lenders still need to look at your credit report regardless of the project.

Here are the two reasons why even a private money lender will look at your credit score. Firstly, they want to know your monthly debt load.

Second, they need to determine how you have managed your credit in the past and what type of risk they need to associate with this.

Assuming the other aspects of your full hard money loan package are desirable, most private money lenders will still fund.

5. Hard Money Loans: Are there a variety of different types of loans?

Absolutely! Since the needs of borrowers vary, there are types of loans to fit each borrowers situation. Residential rehab loans, loans for cashing out single family residences, rehab commercial loans, commercial loans, vacant land loans, construction loans, and acquisition loans are all common types of San Diego hard money loans.

6. If I wanted to get a hard money loan in California what would I need to provide?

There are two sides to this question. This is due to the different documentation required by residential loans and commercial loans.

Residential: Application, Credit Report(broker/lender provides), Appraisal, 2 months bank statements of assets, Proof of Income for one to two years.

The hard money lender underwriting a commercial real estate project will typically ask for a financial proforma, a narrative commercial appraisal, two years proof of income, an executive summary, financial statements from the principals (individuals, partnerships, and/or corporations), and a completed application.

7. At what interest rate can I expect to borrow hard money in San Diego?

The interest rate will vary depending on the transaction. For example, the type of property will affect the interest rate, commercial vs. residential.

Interest rates in the range from 10% to 15% are not uncommon. The interest rate a particular private lender charges will depend on the repayment terms of the loan, credit history, whether the loan will be senior or junior, and the condition of the improvements.

8. What kinds of loan repayment schedules are available with hard money?

Typically interest-only and amortized loans are available for you.

9. How long will I have to repay my private financed loan?

The loan term will typically depend on the investor or funding entity. Generally speaking, the loan terms for private and hard money are short in duration. Anywhere from 1-5 years.

10. Are prepayment penalties common in private money loans?

This is an issue that is up for negotiation. It will not hurt to ask for terms that do not include a prepayment penalty. Each lender will consider this request in light of the overall strength of your loan package.