A hard money loan resembles a conventional home mortgage, where the borrower receives a loan with real estate acting as collateral. However, the crucial distinction lies in the fact that Los Angeles hard money loans are funded by private investors instead of institutional lenders like banks and credit unions.

Unlike institutional lenders, hard money lenders don’t prioritize income history or credit scores. Los Angeles hard money lenders primarily assess the property’s value and the borrower’s equity in the property. This emphasis on value and equity enables fast and flexible funding that banks cannot match.

The decision to approve a loan is primarily based on two factors: the amount of equity present in the property located in Los Angeles and the intended purpose of the loan. In other words, the applicant’s eligibility for a loan will be assessed by considering the value of their property and how they plan to utilize the loan funds.

Typically, Los Angeles hard money lenders require a down payment of at least 25-30%, which is higher than what banks and credit unions usually ask for. However, hard money lenders have fewer loan approval requirements. They can overlook poor credit or other issues on a borrower’s record, such as bankruptcies, foreclosures, loan modifications, and short sales.

Hard money loans are intended for short-term use. When applying for the loan, borrowers must have an exit strategy in mind. In Los Angeles, borrowers often have access to hard money loans for up to 3-4 years. Common exit strategies include refinancing with a conventional loan or selling the property.

Hard money lending companies generally have higher interest rates compared to conventional bank lenders. In Los Angeles, hard money loan interest rates typically range from 8-12% for a first (senior) loan. Second (junior) loans carry higher interest rates, ranging from 11-14%, as there is increased risk for the lender in the second position. The specific rate will depend on various factors such as the lender, borrower, property, and requested loan-to-value ratio. While hard money interest rates are higher than those of conventional loans, the flexible lending criteria and swift funding make the higher cost worthwhile.

Real estate investors seeking prompt financing to seize time-limited opportunities often benefit the most from fast hard money loans. Since hard money loans are offered for short terms, the higher interest rates usually do not represent a significant cost over the course of the real estate investment.