Real estate investing can be extremely lucrative, even for first time investors. In fact, there’s a reason why 90% of the world’s millionaires invest in real estate: because it builds wealth. But one of the biggest hurdles many first time investors face is figuring out how to bankroll their investment strategy, which is why it’s extremely important to find the best hard money lenders in California for first time investors. Partnering with a hard money lender as a first time investor can help supercharge your investment strategy exponentially. It will enable you to capitalize on key investment opportunities at a faster clip and with greater flexibility.
So how do you find the best hard money lenders for first time investors? This fundamental guide will help identify how hard money lending works as well how to choose the best hard money lenders in California.
What’s a Hard Money Loan?
A hard money loan is a type of asset-based financing often used by both new and experience real estate investors to grow their real estate portfolio. These loans are typically shorter in term making them ideal for complex transactions or if you need funds in a pinch.
Some investors are turned off by the term “hard money” because they think it will be “hard” to qualify for. In reality, hard money loans are easier to obtain, have a faster approval process, and require fewer hoops to jump through than most traditional real estate loans.
Many first time investors choose hard money loans because they are flexible and easy to use. That’s because the best hard money lenders in California approve hard money credit request by putting more scrutiny on the underlying real estate being used as collateral, rather than a borrower’s credit score or other limiting factors, leading to faster approval decisions.
Understanding Hard Money Loan Terms
If you are considering a new hard money loan, make sure you understand your hard money loan terms and are choosing a lender that’s considered one of the best hard money lenders in California.
Property Types
As a first time investor, its important to identify they types of real estate you are looking to invest in. There are a lot of options available including: single-family homes, multi-family units, and commercial properties.
Some hard money lenders have restrictions on the types of properties and transactions they will extend credit on. However, the best hard money lenders in California will have hard money loan programs that work with multiple property types.
Interest Rates
Its important to find a hard money lender that is transparent about the interest rates they offer. Typically, hard money lenders have higher interest rates compared to traditional real estate loans. However, they also offer the best value, when considering speed of ease of approval. Rather than focusing solely on rates, consider a more holistic approach focusing on overall value.
Loan-to-Value (LTV)
Its important to understand loan-to-value ratios when it comes to using a hard money loan. The best hard money lenders in California often offer a maximum LTV between 70-80%, meaning you should expect to have a down payment of at least 20-25% or more. Hard money lenders utilize LTV ratios to help manage risk by ensuring borrowers have sufficient equity in real estate owned.
Loan Duration
Unlike traditional mortgage loans that can have loan terms spanning decades, hard money loans typically fill short-term financing needs. Hence, when you request a hard money loan from one of the best hard money lenders in California, expect the loan duration offered to be between one to five years.
Cash Reserves
Depending on the hard money loan program you choose, some lenders may require you to demonstrate you have sufficient cash reserves to cover any proposed monthly loan payment. Since many investors lease properties purchased using a hard money loan, cash reserves provide a cushion should there be a period where the property may not be fully rented, and the cash flow is needed to repay the loan.
Prepayment Penalties and Fees
Its extremely common for even the best hard money lenders in California to impose prepayment penalties for investors who pay off their hard money loan early. Lenders can structure these caveats differently, so its important to review these prepayment terms before you finalize your hard money loan.
Equally important is understanding the types of fees your hard money lender may charge for their services. Some hard money lenders have been known to include upfront and hidden fees embedded in their pricing. But this isn’t how all hard money lenders do business. For example, Independent Lending never imposes hidden fees.
Tips for Finding the Best Hard Money Lenders For First Time Investors
Tip #1: Search for a Hard Money Specialist
The biggest mistake first time investors make when searching for the best hard money lenders in California is doom scrolling online trying to find the perfect candidate.
Instead, there is a much more efficient way to narrow your search results. Look for hard money lenders that specialize in supporting real estate investors. Specifically, you want to search for lenders that offer hard money loan programs that cater to your investment strategy.
Asking questions and inquiring about an organization’s specific experience in the areas that you value will help you better determine which lenders are best to partner with.
Tip #2: Pick a Partner With Personalized Service
Navigating competitive real estate environments can be challenging as a first time investor. That’s why it’s important to find a hard money lender that can help guide you with a personalized touch.
When reviewing the best hard money lenders in California to partner with, consider which lenders will go the extra mile to see you succeed.
Look for a lender that offers a personalized touch. Lenders that will help review your goals, offer tips on how to improve your credit, or even provide introductions to other investors in their professional network that may be willing to provide mentorship, a great to partner with.
Tip #4: Keep Your Search Local
When searching for the best hard money lenders in California, you want to find a partner that know the local real estate market like the back of their hand. While there are several national providers to choose from, many are located out-of-state and have very little knowledge of local real estate trends. Instead, keep your search local and choose a provider you know knows your area.
Tip #3: Choose a Direct Hard Money Lender
As a first time investor, it’s a good idea to get in bed with a hard money lender that is a Broker and direct lender. This ensures that all bases are covered and that there should be not problems with funding your loan.
Direct lenders are great for building relationships, and it helps keep your financing under one roof, helping to streamline your overarching investment strategy. Brokers are great for locating niche investors and hard to fund loan scenarios. The best hard money lenders in California for first time investors are those that stick around as resource after a deal has closed.
Tip #5: Pay Attention to Approval and Funding Speed
Speed is everything when it comes to real estate investing. As a first time investor, being able to capitalize on new investment opportunities quickly is essential to growing your real estate portfolio. That’s why approval and funding speed is crucial.
The best hard money lenders in California can approve you for a hard money loan in minutes and fund your deal in as little as a few days. But be careful! Some hard money lenders boast fast approvals but then make you jump through a bunch of hoops or charge an upfront fee to get started.
The Best Hard Money Lenders in California, Independent Lending
If you are looking for the best hard money lenders in California, then Independent Lending is the partner for you! Having facilitated over $500 million in mortgage lending since 2013, Independent Lending prides itself on helping first time investors finance their investment strategies by providing hard money loans with flexible terms customized to meet your specific real estate objectives. Our asset-based approach to lending has left hundreds of clients satisfied, reflected in our A+ rating with the BBB and numerous 5-star reviews on Zillow and Google. If you want support, transparency, and personalized service, contact Independent Lending today to discover how we can support your real estate investment goals!
