Hard Money Loan Rates (2024) In California

Quick, flexible financing is the key pro of hard money loans in real estate investment. That’s why real estate brokers and investors often prioritize using them.

In an article, we will update the latest 2024 hard money loan rates in regions of California. It aims to help real estate investors make informed decisions quickly.

Understanding Hard Money Loans

What are hard money loans? Hard money loans are short-term lending instruments secured by real estate. Unlike traditional mortgages, they focus on the property’s value, not the borrower’s credit.

This property-focused approach speeds up approvals and funding. It often takes days instead of weeks or months.

Key Characteristics of Hard Money Loans:

• Short-term loan (typically 6 – 24 months).

• Hard money lenders charge higher interest rates than traditional loans.

• Focus on property value over the borrower’s credit history.

• Faster approval and funding processes.

Hard money loans have unique benefits for real estate investors. But, it’s important to weigh these against their drawbacks. Learn more about the “Hard money loans pros and cons” to make an informed financing decision.

Hard Money Loans Rate Average of November 2024 in California

New to Hard Money Loans?

Expect to pay 8.5% – 12% interest on your first loan. This is higher than a regular bank loan, but that’s because hard money lenders take on more risk.

Already Have a Loan?

A second loan will likely have a higher interest rate, typically 11% to 14%.

LTV for hard money 1st mortgages is 70%, and for 2nd or 3rd mortgages, the LTV is 65%.

Don’t Forget The Extras:

• Origination fees: This is a small payment to the lender for setting up your loan. It’s usually 2% to 3% of the total loan amount.

• Closing costs: You’ll also have other fees to finalize the loan. Ask your lender for a complete list of these costs upfront.

Important note: These are averages. Your actual interest rate and fees could be higher or lower. It all comes down to your credit history and the details of the property you’re buying.

Update Interest Rates Q2, June 2024

California loan rates can vary. They depend on the property’s location, the borrower’s experience, and the loan terms. Here’s an overview of California’s average hard money rates for Q2.

Update Interest Rates Q3, September 2024

Lightning Docs, a hard money loan documents software company, has data that shows the interest rate for California hard money loans in Q3 2024 is 11.08%.

Analytics Logics, a private lender data provider, has data that shows the average interest rate for California hard money loans in Q3 2024 is 10.51%.

Lenders charged an average origination fee of 1.3 points. The average loan-to-value (LTV) ratio was 63%, with an average loan amount of $737,670.

Factors Hard Money Interest Rates

Some factors that affect the rate range of loans in California include:

1. Borrower Experience: Experienced investors often get lower rates. At the same time, new borrowers may face higher rates due to higher risk.

2. Project Type: Fix and flip projects may have higher rates. They are risky, short-term projects. Buy, Rehab, Rent, Refinance (BRRR) strategies might secure lower rates, including long-term rentals.

3. Collateral Value: Properties with lower LTV secure better rates. Because they bring less risk to hard money lenders.

4. Credit Score: A credit score over 650 can help you negotiate better rates. However, It’s less critical than traditional lending.

5. Loan Term: Shorter terms (under a year) often have higher rates. Longer terms may offer slightly lower rates, but they are rare.

6. Market Conditions:  Growth real estate markets may see higher borrowing rates. That is, borrowers may accept higher costs. Slower markets might see lower rates to boost borrowing.

7. Lender’s Assessment: Each lender may have unique criteria. They will consider the project’s potential profit and its business model.

Now that you know the factors affecting hard money loan rates, learn the lenders’ requirements. For more details, check our “Hard Money Loan Requirements” guide.

Frequently Asked Questions

What are the rates for hard money vs. bank loans for real estate investment in California?

Hard money loan rates are usually higher than traditional bank loans. It’s possible for the difference between average hard money and bank loan rates to (10% – 18%) in particular scenarios.

How do the hard money loan rates differ for residential and commercial properties in California?

Commercial hard money loan rates may be higher. They are riskier and more complex due to commercial properties.

How do hard money loan rates vary across California?

High-demand areas, like Los Angeles and San Francisco, may have higher loan rates due to intense competition for properties.

What is the range of origination fees or points charged by hard money lenders in California?

Origination fees for hard money loans in California can range from 2% to 3%, adding to the overall cost of borrowing.

What are the typical prepayment penalties associated with hard money loans in California?

In California, prepayment penalties on hard money loans can be 1% to 3% of the outstanding loan balance. This range isn’t universal across all regions of the state.