Why do California Hard Money interest rates seem to be higher than bank rates?

Why the high interest rates on California Hard Money loans?

You may have heard the term “Hard Money” floating around in recent years and considered the possibility of purchasing a home this way. However, the little bit higher interest rates that come along with California Hard Money tends to scare borrowers away. Make sure you know the basics of California Hard Money before writing it off completely--you never know how you could make it work for you!

The first thing to understand is that California Hard Money loans are equity-based. That means your eligibility for a loan does not come from your credit, ability to pay, or employment status. In fact, the loan is solely based on property value. What does this mean for you and your lender? Quite simply, it means that you have not been able to get approved for a traditional bank loan. It also means than a Hard Money lender is taking a significant risk by allowing you to borrow his or her personal money for a time, honestly not knowing if they will get it back. Hard Money loans take a significantly higher risk than banks because the loans are based so little on you and so much on the property value.

Another thing to remember is that California Hard Money loans are typically shorter than bank loans. Usually, these loans last anywhere from 6-36 months, but can fluctuate depending on the situation.

Another reason borrowers experience a bit higher interest rates is because they are not required to pay any application fees, recording process fees, documentation fees, or closing costs. All of those expenses add up quickly and they have to be accounted for somehow.

The main reason California Hard Money loans charge a bit higher interest rates because of the significant risk taken on behalf of the lender. These lenders go where banks refuse to go, and they lend to those individuals who would never be loaned to otherwise. They don’t look at a borrower’s ability to pay--they simply trust that that borrower will do what they say they will.

What about LTV in terms of California Hard Money?

Simply put, the LTV stands for the Loan to Value ratio of an California Hard Money loan. Sometimes, borrowers can receive up to 80% of the money pertaining to the property value. Most of the time, this number is anywhere between 65% and 80%. This is determined on a case by case basis and is a decision made between you and your borrower.

 

 

 

Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com
http://www.Level4Funding.com
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true.

Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

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