Hard Money Lenders California: Fast Funding for Real Estate
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Kelsey Morrison Former HomeLight EditorClose
Kelsey Morrison Former HomeLight EditorKelsey Morrison worked as an editor for HomeLight's Resource Centers. She has seven years of editorial experience in the real estate and lifestyle spaces. She previously worked as a commerce editor for World of Good Brands (eHow.com and Cuteness.com) and as an associate editor for Livabl.com. Kelsey holds a bachelor’s degree in Journalism from Concordia University in Montreal, Quebec, and lives in a small mountain town in Southern California.
Thinking about financing your next real estate project in sunny California? Whether you’re planning to flip a bungalow in San Diego or invest in a rental property in Sacramento, hard money lenders in California can offer the flexibility and speed you need. Hard money loans serve as an alternative to traditional financing, making them a great option for those with tight project timelines or less-than-perfect credit.
This article will walk you through the basics of hard money lending in California. We’ll explain what these loans are, how they work, what they cost, and when they might be the best choice for you. Additionally, we’ll introduce top lenders in the state and explore alternative financing options to help you find the best fit for your real estate goals.
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Editor’s note: This post is for educational purposes and is not intended to be construed as financial advice. HomeLight always encourages you to consult your own advisor.
What is a hard money lender?
A hard money lender is a private individual or company that provides short-term loans secured by real estate. Unlike traditional lenders, who are primarily concerned with the borrower’s credit and income, hard money lenders in California focus on the property’s value. These lenders are popular among real estate investors, including those flipping houses and purchasing rental properties, who need quick funding and flexible terms.
Hard money lenders use the after-repair value (ARV) — the projected value of a property after renovations — to determine the loan amount. They typically lend a percentage of the ARV to make sure the investment is profitable and secure.
Interest rates on hard money loans are higher, often between 8% and 15%, with shorter repayment terms ranging from 6 to 24 months. Additional costs can include origination fees, closing costs, and points. If a borrower defaults, the lender can seize the property to recoup their investment.
How does a hard money loan work?
If you’re exploring financing options for your next real estate venture in the Golden State, hard money lenders may offer the speed and flexibility you need. Here’s a brief overview of how hard money loans work:
- Short-term loan: These loans typically have repayment periods ranging from 6 to 24 months, much shorter than the traditional 15- or 30-year mortgage term.
- Faster funding option: Hard money loans can be approved and funded within days, unlike traditional loans that take 30 to 50 days to close.
- Less focus on creditworthiness: Approval is less dependent on your credit score or income history and more on the value of the property being financed.
- More focus on property value: These loans use the property as collateral and are based on the asset’s loan-to-value ratio.
- Not traditional lenders: Hard money loans are offered by individual investors or private lending companies, rather than traditional banks.
- Loan denial option: These loans are often a solution for those with poor credit who have been denied a mortgage but have a lot of home equity.
- Higher interest rates: Due to the increased risk for lenders, hard money loans have higher interest rates than conventional mortgages.
- Might require larger down payments: Borrowers might need to make a larger down payment, sometimes up to 20%–30% of the property’s value.
- More flexibility: Hard money lenders can set flexible criteria, helping borrowers avoid foreclosure or secure loans that conventional lenders wouldn’t approve.
- Potential for interest-only payments: Some hard money loans offer the option for interest-only payments initially, providing financial breathing room early in the loan term.
What are hard money loans used for?
Hard money loans serve unique needs within the California real estate market. They provide fast funding and flexible terms for various scenarios where traditional loans might not be sufficient. Ahead, we’ll take a closer look at common uses for hard money loans:
Flipping a house: For California investors focused on flipping homes, hard money loans offer quick access to cash for purchasing and renovating properties. These loans allow flippers to acquire properties quickly, make necessary renovations, and sell them for a profit in a short period.
Buying an investment rental property: Investors looking to purchase rental properties can use hard money loans to quickly secure properties, especially those needing immediate repairs. Unlike traditional loans, hard money loans allow landlords to complete renovations and start generating rental income ASAP.
Purchasing commercial real estate: Commercial real estate investors may consider hard money loans as an option for financing their purchases. These loans can be attractive due to the faster approval process compared to traditional bank loans.
Borrowers who can’t qualify for traditional loans: Individuals with significant home equity but poor credit or other disqualifying factors often turn to hard money lenders. These loans are based more on the property’s value than the borrower’s credit score.
Homeowners facing foreclosure: Homeowners facing foreclosure might seek out hard money loans to refinance their debts or buy some time to sell their property. This approach can help them avoid the damaging effects of foreclosure on their credit report and offer short-term financial relief.
How much do hard money loans cost?
Hard money loans generally come with higher costs due to the increased risk and faster funding. Here are some of the typical costs involved:
- Interest rates: These can range from 8% to 15%, based on the lender’s risk assessment.
- Origination fees: Lenders may charge 1% to 5% of the total loan amount as an origination fee.
- Closing costs: Additional fees at closing can include legal fees, appraisal fees, and other administrative costs.
- Points: Lenders might charge points (a percentage of the loan amount) upfront, increasing the initial cost of the loan.
You can use various online calculators to estimate these costs.
Alternatives to working with hard money lenders
Let’s say you’re not a real estate investor, but a homeowner looking to utilize your home’s equity. If that’s the case, here are a few options you might want to consider:
Take out a second mortgage: Using a home equity loan or home equity line of credit (HELOC) can provide you with additional funds at a typically lower interest rate than hard money loans.
Cash-out refinance: This method allows you to refinance your current mortgage and withdraw cash, often resulting in a lower interest rate than you’d get with a hard money loan.
Borrow from family or friends: Loans from family or friends can offer more flexible repayment terms and potentially lower or no interest rates, making them a cheaper alternative.
Use a government-backed loan program: Federal programs like those from the FHA, VA, or USDA can help you buy a home with lower down payments and reduced interest rates.
Peer-to-peer loans: These loans are available through platforms like LendingClub or Prosper, where individual investors fund your loan, often with different terms compared to hard money loans.
Specialized loan programs: Look into loans tailored for specific needs, such as those for fixer-uppers or investment property refinancing, which might offer better terms than hard money loans.
Request a seller financing option: Sometimes sellers are willing to finance the purchase themselves, which can lead to lower closing costs and easier qualification requirements.
How to buy before you sell
You might stumble upon your dream home when you least expect it. Maybe it’s a well-preserved mid-century modern house or a conveniently located condo with skyline views. If you’re a California homeowner wanting to buy a new home before selling your current one, HomeLight offers a seamless solution.
HomeLight’s Buy Before You Sell (BBYS) program allows you to unlock the equity in your existing home to make a stronger, non-contingent offer on a new property. If your home qualifies, you can get your equity unlock amount approved within 24 hours with no upfront cost or obligation. This allows you to purchase your next home first, then sell your current one vacant, simplifying the moving process and avoiding the stress of temporary housing.
Here’s how HomeLight Buy Before You Sell works:
The program charges a flat fee of 2.4% of your current home’s sale price. This fee can be offset by potential savings in moving expenses, avoiding temporary housing costs, and possibly negotiating a better price on your new home. Plus, HomeLight’s BBYS fees are generally much lower than the interest rates on bridge loans, which currently range from 9.5% to 12%.
3 top hard money lenders in California
Traditional lenders aren’t always the best fit for every real estate investment. If you need to move quickly to take advantage of an opportunity, consider working with one of these top-rated hard money lenders in California.
California Hard Money Direct
California Hard Money Direct, based in Los Angeles, specializes in providing hard money loans with a focus on speed and flexibility. They cater to homeowners, investors, and businesses, offering a range of loan programs designed to meet various real estate needs. Underwriting is done in-house, ensuring quick closings, typically within seven to 10 days. They also offer an online loan tracking system, so you can monitor the approval process around the clock.
Lending clientele: Residential and commercial real estate investors, developers, and homeowners
Loan criteria: LTV up to 70% (residential), LTV up to 75% (commercial)
California Hard Money Direct has earned a 4.9-star rating on Google based on over 100 reviews. Clients appreciate the company’s prompt service, professional staff, and the smooth transaction process. “I don’t have a lot of experience purchasing investment properties,” wrote one reviewer. “So I feel very fortunate to have found Judy. She kept me informed, was always ahead of anything that had to be done, and made the process quick and easy.”
310-736-1576
Source Capital Funding, Inc.
Source Capital Funding, Inc. is a direct hard money lender based in San Diego. They offer loans across California, Arizona, Minnesota, Texas, and Colorado. Specializing in hard money loans for residential, commercial, and fix-and-flip investments, Source Capital provides written approvals typically within 24 hours and funds loans quickly, often within days.
Lending clientele: Residential, commercial, and development real estate investors
Loan criteria: LTV up to 65%
Source Capital Funding, Inc. boasts a 4.9-star rating on Google from over 300 reviews and holds an A+ rating from the Better Business Bureau (BBB). Clients praise the company for its professional service, fast funding process, and transparent communication. “I was a builder in NJ for over 25 years and an investor in AZ for 20 years, and the attention to detail this team offered is exceptional,” wrote a former client. “I would refer Source Capital Funding, Inc. with confidence to any investor who needs a creative financial solution.”
888-334-6636
North Coast Financial, Inc.
Based in Oceanside, North Coast Financial is a direct hard money lender with more than 40 years of experience. The company and its affiliates have funded over $800 million in real estate loans throughout California. They specialize in providing hard money loans for real estate investors and property owners. North Coast Financial stands out by offering same-day loan approvals and funding most loans within five days.
Lending clientele: Commercial and residential real estate investors, as well as homeowners
Loan criteria: Depends on the loan program; for example, LTVs up to 70%–75% are available for residential real estate investment loans with financing terms up to 3 years
North Coast Financial, Inc. has been BBB-accredited since 2015 and maintains an A+ rating. They also boast a perfect 5-star rating on Google. Reviews frequently commend the company’s quick responses, professionalism, and reliability. “From the very beginning, they were willing to bend over backward to support me through the process and willing to answer all my questions,” reads one review. “I worked with Jeff and Don and they were both incredibly friendly, responsive, supportive, but above all else, they were extremely knowledgeable.”
760-722-2991
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Should I partner with a hard money lender in California?
Deciding whether a hard money loan is right for you depends on your unique situation and real estate investment goals. Hard money loans are ideal for California real estate investors who need to act quickly, such as those involved in flipping houses or purchasing rental properties. If you’re prepared to handle the higher costs and shorter repayment terms in exchange for fast and flexible funding, partnering with a hard money lender in California could be a strategic move.
However, if you’re a homeowner looking to tap into your home’s equity, consider HomeLight’s Buy Before You Sell program as a viable alternative. This program allows you to unlock your home equity without the burden of high interest rates, charging a small flat fee instead. It simplifies the process, enabling you to make competitive offers and enjoy a smoother transition to your new home.
When making such a significant financial decision, always consider your long-term plans and consult with a financial advisor. For those in California, HomeLight can connect you with experienced, investor-friendly real estate agents who have access to trusted hard money lenders, ensuring you find the best fit for your needs.
Header Image Source: (Bob Osias/ Unsplash)
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