California Hard Money Loan

Read this carefully to learn information you need to know before applying for a California hard money loan.

What happens to California's economy creates a significant impact because it is, after all, the 7th largest economy in the world.  The negative effects of the current housing crisis has extended to every corner and every neighborhood of the Golden State.

It is true that banks and traditional lending institutions have practically cut off the flow of money to borrowers, regardless of their qualifications or credit rating.  This has forced borrowers to turn to independent mortgage companies, also known as hard money lenders, who have been filling the gap since the credit tightening started in 2007.          

A California hard money loan is provided by high net worth individuals, pension funds, hedge funds, and individual retirement accounts, looking for real estate-backed investment opportunities.  They fund both commercial and residential real estate purchases and refinancing.

Things to Know before you apply for a California Hard Money Loan

Understanding Your California Mortgage Loan Disclosures

Lenders are required by both Federal and California state laws to disclose specific information about their mortgage loan.

Such disclosures are meant to inform the borrower and allow them to compare rates and terms from other lenders.  Most of these disclosures must be presented to the borrower within 3 business days from the time they applied for the loan. The disclosures may be sent via regular mail, fax, e-mail, or presented in person.

Main  Federal Disclosures:

  • Good Faith Estimate (GFE) - Based on RESPA (Real Estate Settlement and Procedures Act) law, lenders must supply borrowers of a California hard money loan  with a GFE of their loan's closing costs. The GFE includes an itemization of settlement fees and charges including:  origination and discount points, broker's commission, title and escrow fees, processing and administration fees, recording fees, credit report fees, and appraisal fees. HUD has issued a revised version of the GFE as of January 1, 2010 with the intent to help borrowers cut down on loan costs.

The idea is that the GFE should be sent to the borrower ahead of the loan, and while the borrower is still doing their "comparison shopping".  The broker or originator typically provides one GFE to the borrower right after the loan application is taken, then the lender provides a second one that has more accurate figures.

The GFE also states the date that the loan offer expires to give the borrower a certain amount of time to be able to lock in the interest rate.

Both buyer and seller will receive a final HUD-1 form (also referred to as the final settlement statement) at the close of escrow.  This document itemizes the final closing costs and fees for the loan.

  • Truth-in-Lending (TIL) Statement - The TIL states the Annual Percentage Rate (APR).  The APR calculation gives borrowers a chance to see exactly how much the loan will cost over the life of the loan, once you include prepaid finance charges like private mortgage insurance, processing fees, origination points, etc.The APR tells borrowers the true costs of the loan, expressed as an annual percentage rate that  includes the interest rate + prepaid finance charges.  In addition, the TIL also states whether there is a prepayment penalty for the loan, any details on late payment penalties, as well as the loan's payment schedule. 
Example:  Borrowers can compare each loan offer as "apples to apples" by comparing the APR.  One loan may have a lower interest rate, but when you add in the prepaid finance charges, the APR may be higher than a loan with a higher interest rate, but lower prepaid finance charges.  The APR can tell borrowers if they're getting a good deal or not.  

IMPORTANT to NOTE:  Hard Money Loan APR's - The APR for a California hard money loan (as well as any other type of hard money loans) will be very high because of the high costs and fees.  Many people are shocked to see that their hard money loan APR is 18% when the interest rate is only 10%, which is entirely possible.

LEGAL Significance of the TIL - Any errors in the TIL may give borrowers an extension of 3 years to rescind the loan (right of rescission).  The TILA has become a hot target for forensic audits of loan documents for those seeking a mortgage loan modification.
So as you can see, the benefit of the GFE and the TIL is to give you the ability to compare the costs of each loan offer from different lenders and/or brokers.  However, keep in mind that all California hard money loan products have many additional terms that need to be taken into consideration, so scrutinize the the offers carefully to see which one is best suited to your situation.

Go to Hard Money Real Estate Loans - Basics

Go to Residential Hard Money Loan

Go to Hard Money Loan Types

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