mortagesandforeclosures

by Morgan A. Scott

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.

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.

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.

Furthermore, the borrower who is taking the loan must be able to show the capacity and wherewithal to repay. Typically strong collateral, and a borrower's ability to repay will justify making a hard money loan.

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 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.

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 - In contrast to purchase loans, lenders are concerned primarily with the appraisal, existing liens and corresponding loan amount. Different than purchase transactions, refinance loans are typically written so that the fees are incorporated in to the loan amount. To clarify, the fees are added to any amount that the borrower needs to net after cash out and/or repayment of existing loans.

3. Development/Construction Loans - This loan has three separate features. The LTV is usually contingent on the future value. The funds are distributed according to a draw schedule.

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.

More specific documentation might include; purchase agreement, executive summary, construction breakdown, and draw schedule. With most private money loans you are usually looking at 7-14 business days from lender receipt of the entire loan package. These times may vary depending on the complexity of the transaction.

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.

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