Private Lenders and Hard Money Loans
Hard money loans are made by private lenders instead of banks or traditional lenders and are for purchasing real estate. Hard money loans are necessary when a buyer wants to purchase or refinance a property but cannot get financing from a bank or traditional lender. Buyers with credit problems, or who do not have the time or meet the requirements to get traditional financing must turn to hard money loans to get the money they need to purchase, invest in, or refinance real estate. There are many California mortgage brokers who can help you to find hard money financing or you can contact hard money lenders yourself.
Hard money loans can be used for a variety of real estate purposes including purchasing property, refinancing a loan, getting cash out for equity, or for business investing when a second mortgage is needed to fund repairs or business investments. In order to get a hard money loan you will need to have sufficient equity in your property. Most private lenders will only lend 65 to 75 percent of a property’s value so you must either have a substantial down payment, be paying much less than the property is worth, or have enough existing equity if you are refinancing.
Getting a hard money loan through a private lender is often the only option for people who have bad credit or other unfavorable situations. Because private lenders are taking on more risk than banks and traditional lenders, they charge higher interest rates and will not originate loans with as high of a loan to value ratio than these other types of lenders. High interest rates will increase payments so hard money loans should only be considered if there are no other options available. Although the terms of these loans are not the most favorable, for people who are trying to buy or invest they can be a way to purchase property and begin building credit.
If you have bad credit, no credit, or other situations that prevent you from getting traditional financing a hard money loan may get you the home or investment you need if you have enough equity or money for a down payment. You can always refinance in the future when your situation is more favorable and reduce your interest rate and payment if you do get a hard money loan, just make sure you know what you are entering into when you borrow from a private lender.