Hard Money Loans in California

Homeownership in California falls about 10 percent lower than the national average at just 54 percent. With the high cost of homes and the challenges financing through traditional mortgages can bring, many homeowners, especially in southern California, turn to less traditional types of financing to get the home they want. Although hard money loans are generally offered to investors who flip homes or purchase them to rent out to others, they can also be used to finance a mortgage to buy a home you intend to live in. This allows individuals to use their home as collateral and to get approved for the loan much faster than going through traditional banks. It also means less paperwork that needs to be filled out and understood.

Foreclosure Laws

For California homeowners who are facing foreclosure, the process is usually handled outside of court through a non-judicial process. Typically only cases that involve state-owned property or property in probate court require the courts to get involved.

Property Redemption

While some states give homeowners the opportunity to buy their homes back, even after the completion of a foreclosure sale, this isn’t the case in California. Once a home is sold on the auction block, homeowners are unable to buy it back.

Deficiency Judgments

Another issue homeowners may experience in some states is the ability for the bank to go after the homeowner for any deficiencies once the foreclosure process is completed. This allows the bank to recover any money owed beyond what the sale of the home brings in. Fortunately, this isn’t allowed in California.

Deed in Lieu of Foreclosure

When it becomes clear a home will go into foreclosure due to a homeowner’s inability to pay, they can often go through a process known as deed in lieu of foreclosure. This means they voluntarily turn the property over to the bank and move out of their own accord without waiting for the foreclosure process. This avoids going to court and sometimes even allows the homeowner to leave the property with a little money for the effort because if saves the bank the cost of foreclosing. This money can help individuals with the costs of moving, including putting a down payment on an apartment or other rental property.

Grace Period Notice

California is one of just a few states that has a grace period built into their foreclosure process. Lenders are required by law to personally contact, or at least attempt to contact, the homeowner to discuss their options to avoid the foreclosure process. This must be done 30 days prior to the foreclosure notice period. The notice of default is sent to the homeowner with a three-month notice filed with the county recorder’s office within 10 days. At the end of this three-month period, the lender then files a notice of sale and sends it to the homeowner at least 20 days prior to the date of sale. This means the sale date cannot take place sooner than three months and 20 days after the foreclosure process begins. The notice of sale must also be publicly posted, often in the local newspaper, as well as on the property in question.

Service Member Mortgage Protection

Certain individuals who are members of the military are often protected under Servicemembers Civil Relief Act, which is a federal mandate. In addition to the military, California extends these benefits to National Guard members and those who are ordered into active state service by the governor. Reservists are also covered under this act, giving them peace of mind they won’t lose their homes while serving their country.

High-Risk Mortgage Protection

Abusive loan practices can create problems for individuals. This is why the state government has put protections in place to combat these practices. Judges have the power to order lenders to reform their practices to ensure equity. These protections don’t apply to mortgages through the secondary market, such as Freddie Mac, or those who don’t know the loan origination violations.

Other Statutes

There are other laws in California in reference to foreclosures that are important to learn about. For instance, the law caps interest rates for mortgages at no more than 12 percent for sales and seven percent for judgments. However, there are exceptions to these rules in certain situations. Many banks and similar institutions are exempt from these rules. Real estate brokers can also help individuals obtain a loan that falls outside these limitations.

Another way California protects homeowners is with their homesteading regulations This law protects the equity the homeowner already has and must be requested by the individual living on the property or a relative of that person. This automatic homestead exemption can stop a foreclosure if the lender is unable to prove the sale can produce the funds to repay any liens and the exemption amount. If the sale is sufficient to cover it, the sale proceeds and the homeowner receives the exemption amount to be used to establish a new residence.

What You Need to Know About Fix & Flip Hard Money Loans

Real estate investing is a fast-growing trend that allows individuals to make a lucrative investment in their future. While many people think about buying property to rent out to generate a passive income, there are other options. If you love doing fix-it jobs around the house, buying property that needs work to fix it up and resell it for a higher price can be a more attractive real estate investment option. However, it can be a challenge to get the funding you need for this type of project, which is where hard money lending comes into play. The following will tell you everything you need to know about fix and flip hard money loans so you can get started.

The Basics

Hard money lenders often loan out their money at higher interest rates with larger down payments required in exchange for some other benefits that can make traditional lending more difficult. For instance, your credit will have much less bearing on these arrangements than seeking a traditional mortgage loan through a bank. In addition, the lender typically looks more at the overall value of the project, rather than whether your credit is good enough for a loan. In these situations, the property you buy is used as collateral. These loans are designed to last for a shorter period, just long enough for you to make the needed renovations and sell the home, which means the higher interest rate doesn’t have as big of an impact on how much you spend.

Hard Money Loan Requirements

The requirements for fix and flip hard money loans are quite different from your traditional mortgage loans. Rates for these loans typically run between seven and 12 percent, which is often higher than traditional mortgages. Your lender will look at the loan-to-value ratio to determine how much to offer, as well as the terms of the loan. Fee or point between one and 10 percent may also be charged.

How to Qualify

Once you make the decision to use fix and flip hard money loans, you next need to learn how to qualify so you can increase your chances of finding a lender who will work with you. In many cases, hard money lenders operate with a simple online form, especially since they don’t usually factor your credit into the equation. All you need to do is complete the loan application and pay the application fee. You may also need to provide two to three months of bank statements, a signed offer for the property you intend to purchase, the address of the property, any contractor agreements you have and your plans for renovation. This will help the investor decide if they want to fund your project.

Why Use These Loans

Most individuals who purchase and flip properties can benefit from using hard money loans versus a more traditional mortgage. Not only are they easier to qualify for and include shorter terms, but they also offer faster approval times so you won’t lose out on buying a great value you can turn around for significant profit. Including a business plan with a clearly defined project end date can help increase your chances you will be approved for this type of loan.