Hard money loans are secured by real property. These loans are usually funded by private individuals or companies, rather than traditional banks. Generally, a hard money loan is a short-term financing solution to bridge a gap until long-term financing is available. Whether it’s to access quick working business capital or to capitalize on a time sensitive real estate opportunity, a hard money loan may be a valuable solution.
Understanding Hard Money Loans
A common misconception is that all hard money loans are the same, however, there are many different programs hard money lenders offer.
- Bridge Loan: A short-term loan based on the property’s loan to value, designed to help real estate investors to capitalize on investment opportunities without the stringent underwriting requirements correlated with conventional financing. For more bridge loan information click here.
- Fix and Flip: Purchasing a property in need of renovation and selling it for a profit within a relatively short period of time. Hard money lenders will offer these loans based on multiple different factors. For more fix and flip loan information click here.
- 2nd Trust Deed: A loan designed for borrowers to utilize their properties equity in 2nd position without having to refinance their 1st mortgage. This loan can also apply to owner-occupied properties if the funds are directed toward the borrower’s business and strictly used for business purposes. For more 2nd trust deed loan information click here.
Below are some common scenarios when a hard money loan can be utilized:
- Challenges with Conventional Financing
- Paying Off Matured Construction Loans
- Time-Sensitive Transactions
- FICO Constraints
- Foreign National Financing
- Meeting 1031 Exchange Deadlines
- Maturing Private Notes
- Cross Collateralization
- NON-QM Turndowns
- Notice of Default Bailouts
- Self Employed Borrowers requiring a Capital Injection into their Business
Also Read: How Much Do Hard Money Lenders Charge in California?
Scenario Examples of Hard Money Loans:
Bridge Loan Scenario:
A broker had reached out to us in a time crunch to get funding for a purchase of an investment property his client was currently in escrow for. The current conventional lender had backed out of the deal last minute when there were issues with the borrower’s debt-to-income qualification. Upon then, the borrower needed a lender who could close quickly and look strictly at the asset rather than the borrower to avoid losing the earnest money deposit and the overall deal.
Luckily, we provided financing within 3 business days since the asset was in a great market and the loan to value made sense. Furthermore, we were able to offer no prepayment penalty so the borrower could exit this loan at any time and refinance into conventional financing with no penalty.
Fix & Flip Scenario:
An experienced real estate investor had come to us directly with a deal they had eyes on for quite some time. The borrower was purchasing a single-family residence at a discounted price, ultimately to rehab and sell. In this scenario, we successfully financed 80% of the purchase price and 100% of the rehab budget. 5 months after the close of escrow the borrower had finished construction and sold the property for an exceptional profit.
2nd Trust Deed Scenario:
A broker came to us with a client requesting funds for his business. The borrower had sufficient equity in their property, but their 1st mortgage was conventional at a relatively low rate, so it didn’t make sense for the borrower to retire the 1st mortgage with a higher rate. Additionally, the borrower needed to access funds in less than a week, so time was of the essence. We were able to provide the borrower with a business- purpose 2nd mortgage in less than a week.
Benefits of Hard Money Loans
- Speed is key with hard money loans. Hard money loans offer speed, which is crucial when you need to finalize a real estate transaction quickly. While a standard mortgage might drag on for 3-6 months, hard money loans can wrap up in as little as two weeks.
- Flexibility is a major perk. Hard money loan agreements can be tailored to fit the specifics of your project and financial standing, presenting options like varied payment plans that can ease cash flow concerns.
- They operate outside conventional constraints. Hard money loans are non-QM, meaning they aren’t bound by the stringent criteria that govern traditional mortgages. This flexibility can be a lifeline when you need funding but other avenues are closed.
- Ideal for cash flow-focused investors. For those aiming to transition out of a property or awaiting an increase in equity, hard money loans offer a strategic financial bridge, providing immediate liquidity without the need for an upfront sale.
Ready to Get Started?
Looking for a hard money loan in Thousand Oaks? Hard money loans are a financial tool for funding real estate quickly and with flexibility, especially when traditional options fall short. Partnering with a trusted Thousand Oaks hard money lender like TrueBridge Loans can offer the guidance and expertise necessary to effectively manage these loans. Whether you aim to secure a fast purchase, finance a fix-and-flip project, or bridge the gap to long-term financing, TrueBridge Loans has the resources to back your goals. Call 805-719-7008 or email us at Info@truebridgeloans.com to see how fast we can help you get started on funding your next real estate deal.
