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What are Hard Money Loans and How Do They Work?


If you’re not familiar with Hard Money Loans, you may be asking yourself what they are, and what makes them different from traditional loans? If you have had trouble getting a loan through your bank or other traditional lending options due to bad credit, a past bankruptcy, or other troubles, it may be time to start looking for alternative finance solutions.

This is where Hard Money comes in.

At Sun Pacific Mortgage & Real Estate, we are experts at providing Hard Money Loan solutions. It’s what we do best! We have been providing them since 1988 in Sonoma County and can lend throughout all of California, dedicated to delivering a straightforward and complete loan process to get you financed quickly.

Let’s take a look at some of the details:

Private Mortgage Brokers/Private Lenders

Banks are usually not interested in providing a mortgage to a bad credit household due to what they perceive as potential risk. Hard Money Lenders are more interested in who you are and how you make your living, and less concerned with bad credit. They are not tied to the traditional bank process and can look at your situation on a personal level.
Simply stated, Private Lenders are people looking to make a deal, just like you! They want to lend you funds for that property you want, in exchange for repayment of the loan with interest.

Still sounds a lot like a bank loan doesn’t it?

Well it is, but Lenders will look at the whole picture, not just what’s on paper!

What is Loan-to-Value (LTV)?

When it comes down to lending on a property purchase, the amount you can receive is based purely on the value of the property. This is what we call the Loan-to-value (LTV) ratio. LTVs are an important aspect of Hard Money lending. Most of the time, Private Lenders will offer 65-75% of the value of a property, requiring you to come up with the remaining 25-35% before applying.

Sounds a lot like a down payment with traditional lending doesn’t it? Right again! This helps secure the loan and provides a good faith investment along with your promise of repayment.

Loan Options and Property Types

Hard Money Loans are beneficial to property investors looking to make profits on purchases, rentals, home flips, business purposes, and sometimes construction. It is also beneficial to individuals looking to purchase their first home, a move-up home, refinance for debt consolidation or to pull extra cash out for home improvements.

Private Lenders like to see your plan to make a profit with the loan, either in rising property values, rehabilitation or acquiring extra income from renters. If you are looking to purchase a home to live in, Lenders will want to know your “exit strategy”, or how you plan to refinance or repay the loan in the future.

A good plan can be just as good as a great credit score in the eyes of Private Lenders!

Requirements for Borrowers

So let’s say you have a property picked out, 25% of the purchase price to invest and a good plan and repayment strategy… now what?

The rest is going to come down to your income, current finances, and providing proof that you can repay the loan. Typical loan amounts start at $100,000 on property purchases, and go up through jumbo size loans ($400K – $1 million and up from there). You can qualify for this loan even with a poor or bad FICO, a recent bankruptcy, foreclosure or short sale, the above are the requirements looked at by a Private Lender.

The length of a hard money loan can be short term, 12-24 months or 3-5 year and longer such as 15 or 30 year terms. Are things starting to make sense? We hope so!

Call Sun Pacific Mortgage & Real Estate today (707) 523-2099. We’ll get you started with a free consultation so we can get to know you and you can get to know how we can help you!

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“The Guy In The White Hat – Your Hard Money Lender”. Broker and Co-Owner of Sun Pacific Mortgage & Real Estate, family owned and operated in Sonoma County California since 1988.