Hard money loans are an alternative financing solution to traditional mortgage loans that are an extremely popular option among California borrowers. Homeowners and real estate investors alike often prefer California hard money loans over other forms of real estate financing due to the multiple advantages they provide. Nevertheless, there are still thousands of borrowers who are unaware that hard money loans are a viable financing option. Hard money loans remain a great tool for those that understand how they work. If you have ever wondered how to get a hard money loan, this California guide will help explain everything you need to know.
What is a Hard Money Loan?
Hard money loans, sometimes referred to as private mortgage loans, are a type of mortgage, secured by real estate, that borrowers can use in a myriad of ways. The most common way borrowers use hard money loans is to buy and sell real estate. Hard money lenders in Northern California offer hard money loans as an alternative to traditional mortgage solutions.
The best hard money lenders in California are normally private investors, companies, trusts, and organizations rather than formal financial institutions such as banks and credit unions. These providers take an asset-based approach to lending, which allows them to be more flexible and expedient when addressing new credit requests.
How is a Hard Money Loan Different Than a Traditional Mortgage Loan?
While hard money loans and traditional mortgage loans are both used in real estate, there are several differentiating features that set these two types of loans apart.
The first way a hard money loan is different than a traditional mortgage loan is that they typically have a shorter loan duration. Traditional mortgage loans usually must be repaid over a much longer timeline, often between 15 and 30 years. Hard money loan durations are typically shorter, spanning 1 to 5 years.
Hard money loans also have different interest rates and loan-to-value ratios compared to traditional mortgage loans. Hard money lenders in Northern California often require loan-to-value ratios between 60 to 70%, which is lower compared to some traditional mortgage solutions.
Similarly, hard money lenders usually have higher interest rates compared to traditional mortgage loans, but that’s offset by their greater speed and flexibility. For example, traditional mortgage loans have much more stringent qualifying criteria.
Traditional mortgage lenders must adhere to strict government rules and limitations. The best hard money lenders in California aren’t bound by the same rules and limitations which makes qualifying for a hard money loan easier.
This also helps streamline the approval process translating to faster approval and funding speeds. A typical hard money loan can be approved in minutes, whereas a traditional mortgage may take anywhere from 30 to 60 days on average.
Who Can Take Advantage of a Hard Money Loan?
Knowing what a hard money loan is and how to get a hard money loan will save you a lot of wasted time and stress seeking approval from other real estate financing sources. Nevertheless, a hard money loan isn’t always the right solution for every borrower.
Despite their superior design, allowing for greater speed and flexibility, the types of borrowers that the best hard money lenders in California often work with are:
- Homeowners and Homebuyers
- Real Estate Investors and Business Owners
- Non-Traditional Borrowers
Homeowners and Homebuyers
Hard money loans are frequently used by both homeowners and homebuyers alike for a variety of financing situations.
Homebuyers seeking to purchase a property, but who don’t want to wait for an existing home to sell, can leverage residential bridge loan lenders in California who can offer hard money loans that will “bridge” the timing between the two transactions.
Homeowners can also benefit from working with hard money lenders in Norther California by leveraging existing real estate equity via a hard money cash out refinance or hard money second mortgage loan. The funds can be used for investing, debt consolidation, renovations, or other special projects.
Real Estate Investors and Business Owners
Both new and experienced real estate investors can benefit from hard money loans. While seasoned real estate investors may already know how to get a hard money loan, new investors can certainly benefit from incorporating hard money loans into their real estate investing strategy.
Business owners are also they type of borrowers that can benefit from hard money loans. The best hard money lenders in California frequently work with self-employed business owners by offering the financing needed to improve cash flow or service other commercial obligations.
Non-Traditional Borrowers
Non-traditional borrowers that cannot qualify for a traditional mortgage, or homeowners that are facing foreclosure that have generated significant equity in their home, are prime candidates for hard money loans. It can be hard for non-traditional borrowers to meet the stringent underwriting requirements traditional lenders impose, making hard money loans a viable alternative financing solution.
How to Get a Hard Money Loan in California in Just Three Easy Steps
The steps for how to get a hard money loan are not overly complicated. In fact, borrowers that work with the best hard money lenders in California can usually get a hard money loan in just three easy steps.
Step 1 – Find the Right Hard Money Lender
The first step for how to get a hard money loan is to find the right hard money lender. While there are a few hard money lenders in Northern California, deciding which one to partner with can be a challenge. A few factors to consider when choosing the right hard money lender include:
- Speed of approval and funding
- Professional service and guidance
- Expert knowledge of local real estate trends
- Flexible hard money loan programs
- Upfront pricing and fee transparency
If you are finding it difficult finding the best hard money lenders in California, consider looking for referrals from a mentor or other industry professional. Real estate agents, attorneys, and investors are all great referral sources that can point you down the right path.
You should also consider doing some independent research online. Be sure to review any candidates past client reviews and testimonials. Its also smart to verify their rating with the Better Business Bureau (BBB).
Once you have singled out a few candidates, make sure to reach out to them to ask questions about the services and solutions they offer. Pay close attention to identify any potential red flags.
Step 2 – Apply for a Hard Money Loan
Once you have identified the right hard money lender to partner with, you will need to apply for a hard money loan. Before you apply, be sure to have a candid conversation with your Northern California hard money lender about your overarching real estate objectives. You will also want to understand your lender’s qualifying criteria which could include:
- Appraisal requirements
- Cash reserves
- Loan-to-value ratios
Once you meet the criteria outlined by your hard money lender’s hard money loan program, make sure you have a plan to:
- Gather and submit your identification, financial, and credit documentation (as needed);
- Repay the loan within the given hard money loan program parameters as outlined by your hard money lender;
- Follow up with your hard money lender to ensure a smooth approval and funding process or to address any questions regarding your hard money loan application
Step 3 – Get Approved and Close
Once you submit your hard money loan application, the best hard money lenders in California should be able to approve your loan in as little as a few minutes. The last step is to close on the loan, complete all the necessary paperwork, receive your loan proceeds, and follow your designated repayment schedule.
Hard Money Lenders, Independent Lending
Once you know how to get a hard money loan, it’s important to partner with the right hard money in California. Independent Lending is California’s preferred hard money lender, having facilitated over $500 million in mortgage lending over the last decade. Independent Lending has helped thousands of California borrowers qualify for real estate financing by offering unique and flexible hard money loan programs tailored to each borrower’s real estate objectives. With extensive industry knowledge and an unwavering commitment to getting clients the best value possible, Independent Lending is the right partner that can help you achieve your real estate goals.
Check out any of our 5-star reviews on Google and Zillow below or contact us to discover how we can help develop a hard money financing strategy centered around you!
