First-time home buyers in California often look for ways to make a low down payment…
California Hard Money Loans: Definition, Features and Benefits
Hard money loans are popular among real estate investors who need quick access to cash. These loans allow you to use an investment property as collateral, and they deliver funding faster than a regular mortgage.
In this article, we will explain the main features and benefits of California hard money loans, along with specific scenarios where they can be useful.
California Hard Money Loans, Defined
Let’s start with a quick definition and move on from there.
A hard money loan is a form of short-term financing that can be used to purchase investment properties, among other uses. There are different types of hard money loans available in California. These include fix-and-flip loans, bridge loans, and other variations.
While they can be used in different ways, the basic premise is the same for all scenarios. These short-term loans give residential real estate investors a way to generate cash quickly, by using the property as collateral. They offer faster funding and a simpler qualification process, when compared to regular mortgage loans.
In California, borrowers can often qualify for a hard money loan even if they don’t have great credit or a traditional income stream. These loans are often used by investors and buyers who plan to turn around and sell the property in the near future. Once the property sells, the borrower can then pay off the loan entirely.
Typically Offered by Specialty Lenders
In California, traditional banks and mortgage lenders usually don’t offer hard money loans as a financing option. Instead, they are usually provided by specialty lenders, which are sometimes referred to as private money or hard money lenders.
California real estate investors, house flippers, and similar groups tend to prefer hard money loans over traditional mortgage financing. Generally speaking, they’re easier to obtain and faster to close, compared to a regular mortgage product. As a result, the hard money loan is often the financing “tool of choice” for investors.
How They Differ from Regular Mortgage Loans
We’ve covered some of the differences between hard money loans and traditional mortgage products already. One of those differences has to do with how they are used. A California hard money loan is typically used to buy investment and/or rental properties, rather than a primary residence.
There are some other key differences as well:
- Faster funding. Generally speaking, it can take over a month to qualify for a regular mortgage loan in California. But with a hard money loan, borrowers can often receive funding within days or up to a couple of weeks. As a result, this option appeals to real estate investors who need access to quick cash.
- Shorter term. A traditional mortgage loan in California might have a repayment term anywhere from 15 to 30 years. Hard money loans, on the other hand, have shorter repayment windows that can range from six months to three years. Many real estate investors in California use hard money loans and pay them off within a year or less.
- Credit score and income. Borrowers don’t necessarily need great credit or a traditional income stream to qualify for a hard money loan. The lenders that offer them are mostly concerned with the value of the property. Your credit score, personal income, and debt situation are less important.
- Higher rates. California hard money loans usually come with higher interest rates, compared to traditional mortgages. That’s because they bring more risk. But for many borrowers, the benefits of using a hard money loan more than outweigh the higher rates. Most people who use this type of financing end up paying off the loan within a short period of time, making the interest rate less of a factor.
Summary of Key Points
We’ve covered a lot of information in this article. Here are the most important takeaways:
- A hard money loan is a short-term loan that’s mainly based on the value of the property being used as collateral, rather than the borrower’s credit and income situation.
- Hard money loans offer a shorter term when compared to regular mortgage products. The repayment term might be anywhere from six months to three years. Many borrowers pay offer their loans in a year or less.
- These loans can be use to “fix and flip” a property, to purchase rental properties, and other real estate investment uses.
- The application and approval process tends to happen much faster, and with less paperwork, compared to a regular mortgage loan.
Need financing? Located in the Bay Area, Bridgepoint Funding serves buyers and investors all across California. We offer hard money loans in addition to traditional mortgage options. Please contact us if you have financing-related questions or would like to start the application process.