Hard Money Rehab Loans – Four Things That Should Not Be Overlooked

Posted by Chris Goulart on February 19th, 2020

Most real estate investors need to deal with hard money lenders at some point in their career.  Whether this is due to the time more traditional loans take to get approved when immediate approval is needed or for other reasons, hard money is an important resource to have. However, every investor needs to consider a few things while dealing with hard money lenders. Before applying for hard money rehab loans investors should have a good understanding of the product.

Are you thinking of investing in real estate in San Diego? Do you want to know about San Diego hard money rehab loans? Are these loans helpful in buying a house to flip or hold for rental? Following are the four crucial things about San Diego hard money rehab loans that you need to know before applying with a hard money lender.

It is a fact that most real estate investors end up dealing with hard money lenders at some point. Oftentimes, applying for traditional loans in scenarios where you plan only on holding a property for a short period is not ideal.  If you are planning to rehab a distressed property then hard money loans are an option that should be considered.

Here are four essential things that you must be aware of while dealing with hard money lenders.

Here we go –

1. Hard money rehab loans are typically short-term loans

Hard money loans can be offered for up to 30 years, but more often than not they are short term loans. A typical hard money loan seldom has a term longer than a year or two – especially rehab loans. Knowing this as an investor, it is important that you have an accurate timeline for your project.  Knowing how long the project will take will allow you to structure the correct length of term on your hard money loan. From the moment you close the house, the timer begins.

2. Hard money rehab loans carry higher rates than bank loans

For a hard money lender, it is a risk to lend to an investor who is planning to flip a home.  This is especially true for rehab loans based on the ARV – or after repair value. In these scenarios, the hard money lenders are taking the added risk of you, the borrower, being able to complete the project successfully. For instance, if anything goes wrong during the repairing of the house, overruns with regard to time and/or cost can cause complications.  Due to this, hard money lenders require a higher rate of return in exchange for this risk.  There are many layers of risk, and each one will mean the loan is more costly.  No experience mean more risk.  Lower credit scores means more risk.  Major rehab means more risk.  Recent bankruptcy mean more risk.  The beauty of hard money is that all of these hurdles can be overcome – but the flip side is that the added risk means the cost to borrow is higher than bank loans.

3. Hard money rehab loans are dependent upon Loan-to-Value Ratio

The primary concern of a hard money lender is always the loan to value ratio on the property you are planning to buy. LTV ratio determines the amount you can borrow, based on the value of the property. This ratio is calculated by dividing the amount of the loan by the value of the property. Usually, the acceptable LTV ratios range between 65 to 75 percent – although it’s not unheard of to obtain higher leverage. If the property you are buying is in bad condition then you might need to reduce the loan to value.  Alternatively, the loan could be set up as a rehab loan, with funds available for the work required to be done to repair the property.

4. Not all Hard Money Lenders are the same

Not all hard money lenders will make a loan for a single family property. Many lenders work only with investors who buy multiple properties, multifamily homes or commercial buildings. Also there are several restrictions on the properties that the lenders consider for a loan. So when looking for San Diego hard money rehab loansmake sure to work with someone who can help you obtain the loan that fits your specific scenario.

Author Information:

This article is written by All California Lending, a leading hard money source in San Diego. If you are looking for San Diego hard money rehab loans for investing in real estateyou can rely on them. For more information visit https://www.acalending.com/hard-money-loans-san-diego-county/