You have probably already been through the process of traditional financing—or at least attempted to do so. You know there are certain qualifications that are necessary before any traditional lender will approve a loan. Things such as credit and employment come into the picture as does the question of the value of the collateral. California hard money lenders weigh a few things before they make the decision to invest in a property.
Equity in the Property
One of the first things hard money lenders consider is the LTV (loan to value) ratio between the value of the property and the amount the borrower is seeking. Typically a hard money lender will loan no more than sixty to six-five percent of the property’s value. If the borrower needs more than that and has additional properties, the lender may agree to a lien on another property provided that property has no previous liens since hard money loans require a first lien.
Lack of Previous Liens
As already stated, hard money lenders will not agree to loan money on a secondary basis but must be the primary lienholder. If you have a property that already has a lien you can apply to include that within the hard money loan as long as the loan will still meet the requirements of the LTV ratio. You can then pay off the existing lien, create a new loan and have the money you need out of the property. A cross lien may be appealing to a borrower who has multiple properties but is only in need of funding for one of the properties at any precise moment.
No Credit or Income Requirements
One of the main reasons a person might seek out California hard money lenders is because they do not have the credit score necessary to qualify for a traditional loan. Hard money lenders are interested in the value of the property and not whether or not the borrower has good credit—or any credit at all. If your credit is borderline and you don’t want to spend time waiting to see if a traditional lender will provide the funds you need, a hard money loan is a viable option.
You may also find a hard money loan more beneficial to your needs if you are self-employed and either can’t or would prefer not to provide income documentation. If you just started your business and haven’t yet needed to file a tax return or have been in business only a short time, hard money may be a better avenue for you to pursue. Quite often traditional lenders are looking for either a tax return or proof of an established and profitable business, a difficult thing to accomplish for a new business entity.
Hard Money Loans are Less Restrictive than Traditional Loans
You might also find California hard money lenders less restrictive than traditional lenders for the things you need. The turnaround time is less, there is no need to provide proof of income and credit doesn’t enter into the equation. All of these factors make hard money a viable and favorable option for many residential and commercial investors.