When you think of hard money loans in San Diego, many people conjure up a picture of a dubious lender who does business in alleys with a hidden agenda of taking your real estate property. Contrary to what you’ve been thinking, hard money loans have earned a good reputation due to the benefits they provide to borrowers who may not be able to secure capital from conventional banks.
What’s a hard money loan?
A hard money loan is a type of short-term asset based loan that’s secured by real property. These loans are known as “last resort” or short term bridge loans and are mainly employed in real estate transactions, with the lender usually being private real estate funds or individual investors instead of banking institutions.
These sorts of loans are a lot more flexible compared to conventional bank loans just because the latter is only offered to low-risk cases. For instance, a hard money loan needs property as collateral for the mortgage. This can typically be any type of property. Residential, commercial, partially constructed, warehouse, cannabis related, storage, industrial – even raw land. As long as there is property available to secure the loan and lendable equity in that property, a hard money loan is possible.
While hard money lenders in San Diego may accept any sort of property as security, some lenders prefer one type of property over another. Not all hard money lenders, for example, will lend on raw land. The same can be said for construction, industrial and other specialized types of property.
You must not forget that a hard money loan can’t be the best option for all financial needs. If you’re thinking of purchasing a house and are looking for a long term loan, there are better loans with better repayment terms and interest rates. This is where a conventional bank loan would be your best choice. Conversely, a hard money loan is perfect for construction loans if the banks have turned you down or you need to move quickly. It can also be perfect for a bridge loan situation – for example if you are buying a house but have not sold your house yet. In this type of scenario, the higher rate may make sense – then once your current home is sold and your debt to income ratios are in line you can refinance into a longer term conventional loan.
As far as hard money loan rates are concerned, they differ between lenders as well as property types. In a niche where there are many private lenders, such as for a single family home for investment purposes, you can get a much lower interest rate due to the tough competition. For something like a hard money loan on land on the other hand, there are a lot less lenders so rates are typically going to be higher. Generally interest rates fall between nine and twelve percent. If you find these rates more expensive than traditional bank’s interest, it is simply because private money lenders in San Diego bear a higher risk for the money they lend.
If your loan application was rejected by your bank, don’t give up – a hard money lender in San Diego can be your saving grace.