Real estate is an appreciating asset, meaning its value generally increases over time. It continues to be a popular long-term asset amongst California homeowners and investors alike and is one of many reasons why a large percentage of millionaires choose real estate as a vehicle to generate wealth.
As real estate appreciates, owners gain a greater equity position, which can be leveraged in a variety of ways. One of the best ways to leverage the available equity in your California home or rental property is through a hard money home equity loan.
Hard money home equity lenders make accessing the equity you have accumulated in your California property easy. Compared to traditional mortgage solutions, hard money home equity lenders can provide faster and more flexible financing so that you can obtain the funds needed to satisfy your financial objectives.
This ultimate hard money home equity guide will explore the benefits of utilizing a hard money home equity loan and outline some factors to consider when choosing a hard money home equity loan from California hard money home equity lenders.
What is a Hard Money Home Equity Loan?
Hard money home equity loans are a type of real estate financing available to California borrowers as an alternative to traditional home equity loans and home equity lines of credit (HELOC). Hard money home equity loans cannot be obtained from traditional lenders, but rather are offered exclusively by hard money home equity lenders.
A hard money home equity loan is considered a second mortgage solution, which many traditional lenders shy away from. Those traditional lenders that offer second mortgage solutions tend to have strict guidelines, making it difficult to get approved and those that do get approved must endure a painstaking long approval process.
On the flip side, its much easier to qualify for a hard money home equity loan from hard money home equity lenders. That’s because hard money home equity lenders have fewer requirements and a simplified approval process, giving you more options to access the equity in your California property.
How Do Hard Money Home Equity Loans Work?
Hard money home equity loans are like other types of secondary real estate financing, allowing California borrowers to take advantage of the accrued equity in a property and use the funds towards other financial goals.
Hard money home equity loans, sometimes known as a hard money second home equity loan, take a second lien (also known as a junior or subordinate lien) on your property. Unlike conventional financing, hard money home equity loans don’t have extensive qualifying criteria.
For example, hard money home equity lenders approach factors such as credit score, debt-to-income (DTI), and combine loan-to-value (CLTV) much differently than traditional lenders, making hard money home equity loans much more advantageous.
What Do Hard Money Home Equity Lenders Look For?
Credit Score
Hard money home equity lenders utilize an asset-based approach to lending, meaning they care less about a borrower’s credit score. While a credit check may still be necessary, even those with low credit can qualify. Conversely, traditional lenders often have lofty minimum credit score requirements, making it universally hard to tap into your equity efficiently.
Debt-to-Income
Like their approach with respect to a borrower’s credit, hard money home equity lenders retain far less scrutiny when it comes to income verification when approving a hard money home equity loan request.
In most cases borrowers don’t have to provide formal income documentation, such as paystubs or W-2s (something that’s absolutely required by traditional lenders).
While you must have a means of repayment, hard money lenders don’t have strict debt-to-income (DTI) requirements as they are focused more on the underlying property securing the hard money home equity loan.
Combine Loan-to-Value
The value of the underlying real estate being used as collateral for a hard money home equity mortgage is something that hard money home equity lenders consider. Hard money home equity lenders normally allow a combined loan-to-value (CLTV) of 65%.
To calculate the combined loan-to-value ratio, you add together your proposed hard money home equity loan amount and all other loans on a property, then divide by the property’s value. This number, expressed as a percentage, is the combined loan-to-value.
Hard money home equity lenders need to know you have enough equity in your California property in order to grant your hard money home equity loan request.
Advantages of Using Hard Money Home Equity Lenders
There are several benefits to utilizing hard money home equity lenders over traditional mortgage lenders like banks and credit unions. Let’s review some of the advantages you can expect to gain.
Easier to Qualify
One of the biggest benefits to utilizing hard money home equity lenders for a hard money home equity loan is that there are fewer eligibility requirements. Because hard money home equity lenders leverage an asset-based approach to real estate financing, there is a lower threshold for both income and credit.
Fast Approval Process
Since hard money lenders have fewer restrictions for their hard money home equity solutions, you can expect a faster approval decision. This is extremely important if you need fast funding to pay off other debt, inject funds into a business, for a divorce settlement, or purchase another investment property. Rather than wait months to receive your funds, hard money home equity lenders can typically approve your hard money home equity loan application in a matter of minutes.
Poor Credit is Permitted
Those with poor credit may not be eligible for a traditional home equity loan. Traditional lenders often require a baseline FICO credit score of 660 or more in order to qualify for a traditional home equity loan. Similarly, borrowers with previous bankruptcies or foreclosures are also often rendered ineligible.
On the other hand, hard money home equity lenders put less emphasis on a borrower’s credit score, meaning you can still get approved even if you have poor credit. Most of the time you can still qualify even if you have had prior blemishes to your credit history, such as delinquencies or collections.
No Need to Restructure Your First Mortgage
Another advantageous feature of leveraging a hard money home equity mortgage is that you don’t need to restructure your first mortgage financing.
California borrowers that have secured favorable repayment terms for their first mortgage can keep those same terms and still utilize a hard money home equity loan.
Hard money home equity lenders will place a second lien on your property behind your primary mortgage, which allows you to get the funds needed to satisfy other financial goals without sacrificing a low rate on your first mortgage.
Hard Money Home Equity Lenders, Independent Lending
Hard money home equity loans can be a powerful tool in your arsenal to help get you the funds you need quickly and efficiently. However, its important to find the right California hard money home equity lenders to partner with on a new hard money home equity loan.
Independent Lending is California’s preferred hard money home equity lender. Championing trust, experience, and service, Independent Lending’s hard money home equity loan programs have helped thousands of California borrowers with their real estate financing needs for over a decade.
With over 40 years of combined mortgage lending experience and hundreds of 5-star reviews across Google and Zillow, Independent Lending can help you develop a financing strategy that makes sense for your unique situation. Check us out online or give us a call to discover how our sophisticated California hard money loan programs can help you achieve your financial objectives!
