When it comes to the world of loans, there are many misconceptions when it comes to hard money loans and San Diego hard money lenders.
Let’s clear some of them up. We’ll start with a basic definition—a hard money loan is typically financed with real property, and the interest rates are usually higher than other property loans. This is because of the short duration of the loan, which often makes the transaction riskier.
While it is true that hard money loans are similar to bridge loans, there are differences.
Bridge loans are usually applied to investment or commercial properties that don’t qualify for regular financing, but hard money loans are often applied to situations of financial stress. These can include the owner being falling behind on mortgage payments, or situations where bankruptcy or foreclosure procedures have been initiated.
Because of the high risk and high interest rates, the terms imposed by San Diego hard money lenders may be fairly strict. The amount that can be given out is usually figured out using a ratio of the loan amount divided by whatever the value of the property is determined to be. This number is known as the loan-to-value (LTV), and some hard money lenders may give out up to 65-75 percent of the value of the property.
The term “hard money” has an interesting history of its own. Its usually only used in the US and Canada, which are the two countries where this type of loan is the most common. The practice began in the late 1950s, when many new laws were applied to the US credit industry. Hard money loans are typically unregulated by state and federal laws, although usury laws against especially high industry rates may be applied.
Hard money lenders will almost always use the LTV before applying any extension of the financial terms. This is because the basis of the loan is the eventual liquidation value of the property that forms the backing of the loan.
Because of this restriction, hard money lenders will figure out the value of the property using what’s called a broker price opinion, or BPO. Some hard money lenders use an independent appraisal from a licensed appraiser in the state where the property is located.
If you are going to consider a hard money loan, its important to ask as many question as you feel are necessary about the terms and your rights. This can be done by California Hard Money Direct and many other San Diego hard money lenders.