In the real estate market today, many property owners have locked in historically low long term rates. While it is great to have a long term, low rate mortgage, what happens when you want to access additional capital? In the San Francisco Bay Area, where home values have continued to rise, there are many people in this golden handcuff type of situation. They have a lot of equity in their home, but do not want to lose the long term, low interest rate loan currently in place to access that equity. This is where San Francisco Bay Area hard money seconds can be a solution.
A hard money second is typically a short-term bridge loan solution to help finance business expansion, investment property acquisition, development or other business-related capital expenditures. These are interest only loan products typically written for 1-3 years. They allow access to equity in a property, while leaving the existing first position loan in place.
These types of loans offer quick funding with make-sense documentation. They can be secured by a primary residence, investment property, units, mixed use - even commercial property. They offer flexibility that many bank loans do not.
For example, many banks will not make a loan on a property that is currently on the market - or that has been on the market in the recent past. For a seller who has identified a new property to purchase, but must close prior to selling their existing property, a hard money second can be a useful tool. Hard money seconds do not have any requirements that will not allow financing while a property is on the market.
Another scenario where a hard money second could make sense is for business expansion or repositioning. A business that needs a capital infusion to retain or regain profitability can take advantage of real estate equity to meet those short term capital requirements.
Contract based businesses are a good example. A business that needs capital in order to fulfill existing contracts is a great candidate for these types of loans. Banks are typically going to be looking back at past income to determine qualification. A hard money second can look forward to future income on business purpose transactions.
We do a lot of business with fix and flip investors. These hard money seconds can be a useful tool for the fix and flip business model. Being able to access capital for short term needs to acquire and/or rehab a home for sale - or to increase leverage and enable multiple, concurrent flips - is a make sense use for these interest-only type loans.
In addition, these hard money second position loans are not credit based like bank funding, where there are seemingly arbitrary cutoffs at certain scores. While credit is typically pulled, and poor credit still will need an explanation, there is no specific minimum credit score required. Since it is privately funded, the decisions are on a make-sense type of basis. What is contained within a credit report, the explanation for the issues, and the loan to value is more important than the simple credit score.
There are many other situations where a hard money second in the San Francisco Bay Area can make sense. We are happy to discuss any scenarios or questions anytime - just give us a call!
Comments(1)