mortagesandforeclosures

by Morgan A. Scott

The most often asked question when dealing with San Diego Hard Money is how does this work. Private money is another term used when referring to hard 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.

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.

Most of these loans are written for 65% LTV or lower, which means the loan amount must be 65% or less of the total value of the property. The property is going to have to be marketable. Some private lenders and investors will consider a property that has a low enough LTV even if it is in an area that is not as marketable if the risk is low enough.

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 - The purchase transaction loan will require the lender to check the purchase agreement very closely. This will go for the appraisal as well. The appraisal is the way the value is determined. The purchase agreement is the determination for the market and the foundation of the transaction.

It is important to note that the loan amount and LTV will be based off of the purchase price or appraised value, whichever is LOWER. This is because of the reasoning that the true value is determined by price. In case of a purchase, ultimately, price is whatever the buyer and seller agree upon. Most lenders will assume this concept unless there is an extreme discount that can be shown and proven by the borrower.

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

2. Refinance Loans - The refinance loan differs from the purchase loan because the lender's top concern is established value and respective loan amount. As a result, the lender will want to review the appraisal and any existing liens. Different that purchase transactions, fees are tied into the loan when dealing with a refinance transaction. The fees are added to the amount the borrower gets after paying off existing loans or obtaining 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.

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.

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.

In conclusion, hard money is a great way to fund non-conventional projects in a short period of time. Hopefully, you have a better idea of how San Diego hard money works.

About the Author:

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