News shows that Los Angeles is going through a crippling housing situation. Demand for houses is growing. Los Angeles Realty News shows that the problem is that prices are spinning out of control making houses beyond the reach of those who most need them. The crisis has approached heights such that some activists are discussing seeking government intervention.
At one time, decades ago, people would approach banks for loans and the banks were more forthcoming. In fact they were too forthcoming which is why we had the Depression. Banks learned from that and subsequently only proffered loans once they closely reviewed credit history and worthiness. Today, banks and conventional lending institutions have put a harrowing folio of practices in motion which is why it takes so long to emerge with a mortgage (at least 60 days) and which is why so many potential borrowers are refused.
Those Who are refused seek alternatives
Hard money lenders
One of the most popular alternatives has been hard money – otherwise known as personal/direct/or bridge – lenders. Los Angeles has them too. If you look at the directories of PrivateLenderLinks or BiggerPockets,for instance, you will see 100-200 listings on each. Investors have few choices. There are the conventional loans and then there are the unconventional, but even these may be difficult and costly to land. One of the most appealing lenders in the unconventional loan category is the direct money loan lender who funds from his or her own pocket and considers the value of the collateral rather than the reputation of the borrower. Many find direct money lenders enchanting. They ask for little documentation and supply the loan in short order. Think of 2-3 days turnover!
On the other hand, all of this comes at a catch.
Hard money lenders intimidate potential investors in two ways:
1. Huge payments – Lenders fund from own pockets. They take a risk. To offset that risk, personal money lenders tend to ask for double the interest rate of the traditional mortgage loan. They also ask for a hefty prepayment. Few borrowers are able to oblige and when they fail, their property falls into the lender’s lap.
2. Low loan to value ratio – Properties have their equivalent in money.So, for instance,if your property is worth $80000 you would get $1000. Hard money lenders are notorious for paying glaringly low percentages that tend to hover around 50-60% of the collateral value. This also dissuaded borrowers.
Events have changed.
A few days ago, AlternativeLendingMagazine.com,the largest source for direct money loans and direct money lender programs in California, announced that hard money lenders in Los Angeles have expanded their LTVs from the usual 65% to 75% of the appraised value to more attractive rates. A cursory look at the latest reports from online LA lending agencies show that one or two individuals or organizations even offer LTVs at 100% of the appraised value.This is terrific news.
Alternative Lending Magazine compiled its research through the use of accurate, real-time, internet-based data collected from housing funding sales trends and lender behaviors such as recorded deeds and final closing statements. It analyzed more than 262 direct lenders. The website concluded that,given the situation in California in general and in Los Angeles in particular, these proceedings point to an optimistic future for hard money lenders in Los Angeles.
The high rate of interest remains one intimidating factors. But you can whittle down these rates with research, shopping around, and negotiation. Los Angeles needs its unconventional lenders. The market is rocketing and most investors need loans to profit. For those who are unable to land loans from traditional sources, direct money lenders are one interesting solution. Recent reports show that their mainstream popularity grows as rates push down and LTV floats up. In fact, hard money loans seems to be the best option of the future.