Understanding a Private Money Loan | Mortgage

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.

by MorganA.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.

This article will discuss the general guidelines of San Diego hard money, specifics pertaining to purchase transactions, refinance loans, development/construction loans, and the general processing of 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.

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.

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

1. Purchase Transactions - When structuring these types of loans, the lender will scrutinize the purchase agreement and the appraisal for the property in question. The appraisal will be the basis for value and the purchase agreement will determine the market and subsequently create a foundation for the transaction.

Using the appraisal or the purchase price, the lower of the two will be the basis for the LTV and the loan amount. True value is normally the result of the price. Where a purchase is concerned, the price is the agreement reached by the buyer and the seller. Most lenders will evaluate purchases in this regard. In certain cases, equity consideration may be given for a discount in price as long as the borrower can prove an extreme discount has been made.

The other aspect that differs with purchases is that the borrower must bring in to escrow the down payment and any fees charged. This is different because in refinances the fees are typically financed into the overall loan amount.

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 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.

Lastly, money is put aside for the repayment while the construction is being done by setting up an interest reserve account at inception. These are the three ways a development loan differs from other types of 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.

Detailed documentation can include a draw schedule, purchase agreement, construction breakdown and the executive summary. Depending upon how complex the loan is going to be, it can take anywhere from 7 to-- days for a typical private money loan.

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.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

Finding the best information about San Diego Private Money can be overwhelming at times. Two of the best places we found online to get the straight facts are Scottway Capital Hard Money and San Diego Private Money.