To understand how hard money loans help Los Angeles, Orange County and California real estate buyers and investors, it’s a good idea to start out with some common situations that families and individuals in the Golden State find themselves in. So let’s describe a few scenarios.
Scenario #1: A small business owner has put together money for a down payment and has decided it’s time to stop throwing money away on rent and start building equity and a financial future for his family. He has found a property in Los Angeles that looks perfect. He applies for a loan with one of the conventional lenders that you see advertising on television all the time. However, because he’s in business for himself, his income is difficult to verify in the ways that the lender likes to see, which is usually pay stubs. After going back and forth with the loan officer over a period of several weeks, they finally turn down his loan application. Unfortunately, the seller needs to move quickly, so the small business owner needs to act fast or lose the deal. He finds a hard money lender in Los Angeles, such as Evoque Lending, who can approve him in one day and get him the money in seven to 10 days. The California hard money loan gets him into the property and gives him as much time as he feels he needs to secure a bank or conventional loan down the line.
Scenario #2: A husband and wife have a low credit score due to the Great Recession. However, since then they’ve been able to get back on their feet, but so far that success isn’t yet reflected in their credit report. They know that they need to start building equity in real estate so they will be better prepared for any ups and downs in the economy in the future. They went to the bank where they’ve always done business, but their loan application was turned down – despite years of doing business with the bank. Family friends tell them about hard money lenders in Los Angeles; it was new information to them and they decided to apply. They got a California hard money loan that allowed them to buy the house they wanted and start putting their financial plans into action.
Scenario #3: An experienced construction professional in Northern California has been working for contractors who have made a lot of money “flipping” houses. With his experience, he knows he could do it himself. He has the money for the down payment, but needs a short-term loan to buy the property and get the project going. His bank refuses to help. Hard money lenders know the San Francisco market and understand how much money his project will pay him when it’s finished. He is successful at landing a California hard money loan, rehabs the house and makes a tidy profit.
The real estate investor
Scenario #4: A residential real estate investor wants to expand his portfolio. However, the lender he has worked with before feels that they have too many loans with him already, so they turn him down. With a hard money lender, California real estate investors can often get the money they need to take advantage of opportunities they discover when conventional lenders turn them away.
When banks turn you down
These are just a handful of the situations where California hard money loans can be leveraged to allow buyers to make real estate purchases when banks and conventional lenders deny their applications. I should also point out that often owners are able to use a hard money loan in Los Angeles or California generally to take equity out of their property to use for other purposes.
At Evoque Lending, we find that for many residents in California, hard money loans are something of a mystery. So along with giving you an overview of how someone in Los Angeles might use a hard money loan, we also want to give you a basic understanding of these loans and how they differ from conventional or bank loans.
A hard money loan in California is sometimes referred to as a private money loan. At Evoque Lending, for example, we generally work with private investors who have money to loan and they need to find good borrowers to work with. This is where we are experts. We have been connecting borrowers to hard money loans in California for more than 15 years.
A natural question you – as a potential borrower – might have would concern the differences between what we do as a hard money lender and the conventional lenders that you are probably more familiar with.
If you have been turned down for a loan by a bank or conventional lender, there’s a good chance that it was because of a credit score. This is one area where our approach to lending is different than the conventional lenders. California hard money lenders won’t deny someone a loan merely based on a credit score. The big banks and conventional lenders have internal rules as well as state and federal regulations that tightly control how they do business. Because a hard money loan for Los Angeles real estate, for example, is made with private money, we aren’t under the same constraints.
This gives us the flexibility to look at more than just the number at the top of your credit report. In terms of your personal credit worthiness, we need to know that you have the resources to meet your monthly obligations and the willingness to keep up your payments.
This means that when you apply for a loan with Evoque Lending, we look at the bigger picture to determine your ability and willingness to stay current with your obligations.
You are never automatically disqualified because of a credit score. And the fact that we’ve been doing this successfully for more than 15 years proves that credit scores alone don’t tell you who is going to be a good credit risk. After all, sometimes bad things happen to good people, especially in the world of personal finances. Who could have predicted all the problems that were caused by what everyone is now calling the “Great Recession”? The answer to that question, by the way, is no one and I think history has proved that.
Now let me introduce the other big factor that determines your eligibility for a California hard money loan and it all revolves around a common acronym that we use in lending: LTV.
LTV stands for “loan to value.” It’s the ratio of the total amount of the loan you need to the total value of the property that the loan is based on. Let’s say you purchased a house four years ago for $500,000 and your down payment was $100,000. At the time you bought the house your LTV was $400,000/$500,000 or 80 percent. However, since then your house has gone up in value to $700,000. Now your LTV would be (approximately) $400,000/$700,000 or 57 percent.
The flip side of LTV tells you how much equity you have in your property. In my example above, with 57 percent LTV, you would have 43 percent equity and this is a very important number when granting hard money loans in California. At Evoque Lending, our borrowers typically have about 40 percent equity in their properties when we fund loans.
This accomplishes two things: It gives our borrowers a solid financial stake in their properties and it helps protect the investors who are lending the money. From the investors point of view in a hard money loan on Los Angeles real estate, for example, the borrower’s 40 percent equity is seen as 40 percent “protective equity.” In other words, in a worst-case scenario, investors know they have a 40 percent cushion if the property needs to be sold at any point.
Now that I’ve given you many of the fundamentals that govern hard money loans in California, let me point out where our approach to lending is both different and the same from the approach that a bank or conventional lender would take.
The biggest difference is that for a California hard money lender, the amount of equity in the property is the single most important factor. Conventional lenders and banks have loans that correspond to a wide range of equity situations, and we have seen this change a lot over the years.
In terms of bank loans and hard money loans being the same, I think it’s safe to say that all lenders want to work with borrowers who are going to keep up their payments. No one wants to give a loan to someone they know is going to default.
However, where a California hard money lender is different is in the way we assess a potential borrower’s ability to make payments. Sometimes a bank or conventional lender will turn down an applicant solely on the number that has been assigned via a credit report. At Evoque Lending, that doesn’t happen. We often approve people who have been turned down by banks because of their credit score number.
Now that we’ve outlined some typical scenarios for hard money loans as well as the basic approach we take to approving these loans, it’s important to take a least a few words to let you know how Evoque Lending differs from some other hard money lenders in Los Angeles and the surrounding area.
Our ongoing success is due to our dedication to helping people and delivering the highest levels of customer service in the industry. We understand that when borrowers come to us, many have just had a bad experience with a conventional lender. They need a helping hand and they need it quickly.
Over the 15-plus years we have been in this business, we have fine-tuned our application- appraisal-approval system so that we are able to give our clients an answer within 24 hours on whether or not we’ll be able to help them out. We follow that up with funding within seven to 10 days.
This speed and efficiency allows us to completely turn around what had been bad situations for our clients. In fact, a great many real estate professionals in the Los Angeles and Orange County area know what we can do and they send buyers to us when it looks like deals are getting into trouble.
Of course, the only way you’re really going to appreciate how a California hard money loan can solve your problem is by applying and seeing first hand what we can do for you. So if you – or someone you know – is dealing with a loan problem right now, call the number below or drop me an email and explain the situation.