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Short-term and renovation

Hard money is the loan for an investor with a property or a timeline a bank will not take, and a clear way out

A hard money loan is a short-term loan from a private lender or a fund, secured by real estate and underwritten on the property's value and the plan to repay it more than on your income. Private money is the same thing by another name: the capital comes from private investors or a fund rather than from a bank. We arrange it on investment property in San Luis Obispo County and on the Central Coast. It can cost more than a bank loan, and its cost and timeline are set by the lender. It is not for everyone: if a bank loan or a DSCR loan could close in time, that is the loan to take.

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The program in one box

What it is
A short-term loan from a private lender or a fund, secured by real estate and underwritten on the property's value and the plan to repay it more than on your income. Private money is the same loan by another name.
Who it suits
An investor with a property a bank will not lend on in its current condition, or a closing a bank cannot meet, and a clear way to repay the loan.
How it is qualified
On the property's value, the equity you put in, and the exit: a sale, or a refinance into a longer loan. Credit is pulled and read, and the lender wants to see that you can carry the payments until the exit.
The property
An investment property, a flip, land, or a building that needs work before a bank will lend on it. A loan made for a business purpose sits outside the federal ability-to-repay rule, which is why it can be qualified without pay stubs.
How it is repaid
The lender sets the payments and the term. Where the payments are interest-only, the whole balance comes due at maturity, which is a balloon. The exit plan is the repayment plan, and the lender underwrites the plan. If the exit does not happen, the lender's remedy is foreclosure on the property.
What it costs
Set by each lender, and it can include points at closing, a higher rate than a bank loan, and a prepayment penalty or a minimum amount of interest the lender collects however early you repay. Read each one in writing before you commit.
A home you live in
A different and heavily regulated loan. Federal consumer mortgage rules can apply to it, depending on the loan and on who makes it.
Where it is not the answer
Anyone who could qualify for a conventional, jumbo or DSCR loan in the time available. Those can cost less.

What this program is good at

  • The lender underwrites a property and a plan rather than a full income file, and it sets its own timeline and its own price for that.
  • A property a bank will not lend on in its current condition, a house with no kitchen, a vacant building, raw land, may still find a private lender, because the lender is looking at what it is worth and what it will be worth once the plan is done.
  • It is qualified on the property and the exit rather than on pay stubs. That is because a business-purpose loan on property you do not live in sits outside the federal consumer mortgage rules, not because any lender is doing you a favor, and it is why the purpose on the file has to be true.
  • The term is short and the loan is built to be repaid by a sale or a refinance, so it is a tool for a project with an end, not a mortgage you carry.
  • Private lenders and funds each write their own rules on property type, condition, equity and experience, so a file one turns down can be ordinary at the next.

Who qualifies

What a lender weighs before this program is on the table. A lender can add rules of its own, and those rules can differ from one lender to the next.

The exit

A hard money lender underwrites the way out: a sale once the work is done, a refinance into a DSCR or conventional loan once the property is rented and stable, a buyer already lined up, a construction loan that takes it out. If you cannot say in a sentence how the loan gets repaid and roughly when, the file is not ready, and no lender's leniency about income will fix that.

Your equity and the property's value

The loan is sized against the property's value, sometimes as it stands and sometimes as it will be once the plan is complete, and the lender sets how much of that value it will lend. That is not a figure we print: it is set lender by lender and it moves with the property type, the condition and the plan. What you can put in decides which lenders are open to the file.

Credit and income still get read

Hard money is underwritten on the property and the exit more than on you, which is not the same as nobody looking. A lender may pull credit and sets its own rules on a recent foreclosure or bankruptcy, and may want to know you can carry the payments until the exit and where that money comes from. Reserves, in plain terms. A loan that only works if everything goes right is a risk to you as well as to the lender, and a lender that would not ask is the one to be careful of.

Business purpose, on a property you do not live in

This page is mostly about hard money lent for a business purpose on a property the borrower does not live in: a rental, a flip, land, a commercial building. Federal consumer mortgage rules, including the requirement that a lender verify your ability to repay a home loan, do not reach a business-purpose loan, which is why it can be qualified on the property. A lender may ask you to state the purpose in writing. Calling a loan business-purpose when you mean to live in the house is not a workaround; it is a false statement on a loan file.

A home you live in

A hard money loan on your own home for a personal purpose is a consumer loan, and when the lender is one federal law counts as a creditor, the Regulation Z disclosure rules apply, the ability-to-repay rule applies to all but the shortest temporary loans, and the extra restrictions on high-cost mortgages can apply because of the points and the rate. The terms can be hard. Before taking one, weigh a sale, a refinance into a loan that costs less, and whether the problem is one a loan solves at all.

How it works with us

What happens once you get in touch

The steps in order, so you can see what is coming. Nothing here is underwritten until a lender underwrites it.

  1. Tell us the property, the plan and the exit

    What the property is, what condition it is in, what you mean to do with it, what you can put in, and how the loan gets repaid and roughly when. That is most of a hard money file.

  2. The private lender's term sheet

    Private lenders and funds each write their own rules on property type, condition, equity and experience. A term sheet sets out the points, rate, term, prepayment penalty, extension terms, default rate and what happens at maturity.

  3. Terms in writing, then valuation, title and funding

    Read every cost in writing before you commit. Then the valuation, title and insurance, and funding. Nothing here is committed until a lender commits it.

What people ask about this program

If yours is not here, call us. The useful answer depends on your file.

What is the difference between a hard money loan and a private money loan?

To a borrower, nothing that matters. Both names describe a short-term loan secured by real estate, made by a private lender or a fund rather than a bank, and underwritten on the property's value and the plan to repay it more than on the borrower's income. The points, the rate and the short term are the same loan either way.

Does a hard money lender check credit and income?

It depends on the lender. A hard money loan is underwritten on the property's value and on the exit plan, which is why a lender may consider a recent foreclosure or an unusual income file, and why a property a bank will not take can still be looked at. A lender may pull and read credit, and may want to see that you can carry the payments until the sale or the refinance that repays the loan. A lender that asks nothing at all is the one to be careful of.

What does a hard money loan cost?

It is set by each lender and can come in three ways: points paid at closing, a rate higher than a bank would charge, and a prepayment penalty or a minimum amount of interest the lender collects however early the loan is repaid. We do not print figures for any of them, because each is set lender by lender and moves with the property, the equity and the plan. Every one of them goes in writing before you commit, and if a bank or DSCR loan could close in time it may cost less, and that is the loan to consider first.

Can I use a hard money loan to buy a home I will live in?

It is possible, and we arrange it, but it is a last resort. A hard money loan for a personal purpose on a home you live in is a consumer loan under federal law, which, when the lender is one federal law counts as a creditor, brings the Regulation Z disclosure rules, the ability-to-repay rule on all but the shortest temporary loans, and the extra restrictions on high-cost mortgages. The terms can be hard. Before taking one, weigh a sale, a refinance into a loan that costs less, and whether a loan is the answer at all.

When is a hard money loan the wrong answer?

When a loan that costs less could close in the time you have. A conventional, jumbo or DSCR loan can take longer and asks more questions, and can cost less, so if your timeline and your property allow one of those, that is the loan to take. Hard money is for the property a bank will not lend on yet, the closing a bank cannot meet, and the plan with a clear exit. It is not for a borrower who finds a bank loan inconvenient, and it is not for anyone who cannot say how it gets repaid.

Short-term and renovation

Bridge loan

Uses the equity in the home you own to buy the next one before the first has sold. Short-term, costs more, and only as safe as the sale.

  • Your offer on the next home does not have to be contingent on selling this one, which matters when a seller with more than one offer can set a contingent offer aside.
  • You move once, straight into the next home, instead of selling, renting for a stretch and moving twice.
  • The equity you have built in your current home does the work, instead of sitting locked until the sale closes.
More about Bridge

Short-term and renovation

Fix-and-flip loan

Purchase and rehab money in one short-term loan for an investor, sized on the after-repair value and repaid at the sale.

  • The rehab budget is part of the loan, so the project is financed as one thing rather than a purchase loan and a scramble for the rest.
  • It is sized on the after-repair value, which is the number a renovation creates. A purchase loan only ever sees what the property is worth today.
  • Its cost and its timeline are set by the lender, and it can cost more than a mortgage, so price that in from the start.
More about Fix-and-flip

Investor and self-employed

DSCR loan

Qualified on the rental's rent rather than your tax returns. A business-purpose loan for an investor, priced like one.

  • The rent qualifies the loan, so a rental that carries itself can be bought or refinanced without reopening your tax returns, your business's returns or the entities behind them.
  • A purchase or a refinance, including cash out of a rental you already own, which is how one property's equity becomes the next property's purchase.
  • The loan can be made to an LLC that holds the property.
More about DSCR

Where this program fits:Buying a homeRefinancingThe county's loan limitsThe Central CoastServices

Published by

California Mortgage Solutions Inc. · Company NMLS #325189

This page is general information about a loan program, not an offer of credit or a commitment to lend. What a lender will do with your file depends on the file.

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