Hard Money Lenders California: Fast Funding for Real Estate
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Sam Dadofalza Associate EditorClose
Sam Dadofalza Associate EditorSam Dadofalza is an associate editor at HomeLight, where she crafts insightful stories to guide homebuyers and sellers through the intricacies of real estate transactions. She has previously contributed to digital marketing firms and online business publications, honing her skills in creating engaging and informative content.
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.
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This article will walk you through the basics of hard money lending in California. We’ll explain what these loans are, how they work, how much they cost, and when they might be the best choice for you. Moreover, 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.
What is a hard money lender?
Hard money lenders are institutions that offer hard money loans, which are named after the “hard” assets used as collateral, typically real estate. Instead of relying heavily on a borrower’s credit or income, these loans are approved based 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. These companies use the after-repair value (ARV) or 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 six 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 six to 24 months, much shorter than the traditional 15- or 30-year mortgage term.
- Faster funding: Hard money loans can be approved and funded within days, unlike traditional loans that take 40 to 50 days to close.
- Less focus on creditworthiness: Approval is less dependent on your credit score or income history.
- Greater scrutiny on the collateral: These loans use the property as collateral and are based on the asset’s loan-to-value ratio.
- Non-traditional lenders: Hard money loans are offered by individual investors or private lending companies, rather than traditional banks.
- Traditional loan denial: 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.
- 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 secure loans that conventional lenders wouldn’t approve and avoid foreclosure.
- 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 fixing up 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.
Looking for alternatives to 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.
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.
Use various online hard money loan 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 your home: 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.
Consider 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.
Explore 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 who wants 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:
While the program charges a flat fee based on your current home’s sale price, you can save money on moving expenses and temporary housing costs, and possibly negotiate 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, headquartered in Los Angeles, specializes in delivering fast and flexible hard money financing solutions. The firm serves homeowners, real estate investors, and businesses through a range of loan programs tailored to diverse property and investment needs.
By handling underwriting in-house, California Hard Money Direct is able to streamline approvals and close most loans within five to ten days. Clients also benefit from an online loan tracking system that provides real-time visibility into the approval process, offering added transparency and convenience throughout the transaction.
Lending clientele: Residential and commercial real estate investors, developers, and homeowners
Loan criteria: Up to 70% LTV (residential) and up to 75% LTV (commercial)
California Hard Money Direct reflects a 5-star rating on Google based on over 100 reviews. Clients say California Hard Money Direct comes through when traditional financing isn’t an option. They highlight the team’s responsiveness, transparency, and clear explanations of terms and costs from the start.
Many appreciate the straightforward application process and faster-than-expected closings, especially in time-sensitive situations. The ability to deliver exactly what’s promised earns strong trust from clients.
Website: californiahardmoneydirect.net
Phone number: 310-853-8411
Source Capital Funding, Inc.
Founded in 2007, Source Capital Funding, Inc. was built to provide financing when traditional lenders would not. The firm has since become a leading direct hard money lender, helping thousands of clients, mortgage brokers, and real estate agents achieve their goals.
To date, Source Capital has funded over $500 million in residential and commercial loans, demonstrating a strong record of reliability and expertise. Committed to client success, the company offers loan approvals in 24 hours and funds within seven to 10 days from initial contact.
Lending clientele: Residential, commercial, and development real estate investors
Loan criteria: Up to 65% LTV
Source Capital Funding, Inc. has been accredited with the Better Business Bureau (BBB) since 2010 and earned an A+ grade. Its Google Business Profile reflects a high 4.9-star rating on Google based on over 300 reviews.
Clients commend the company for its professional service, quick funding process, and clear communication. Some highlight their ability to handle unique or complex properties while providing solid loan terms. Others say the company representatives’ expertise and dedication inspire confidence, encouraging clients to return for future deals.
Website: hardmoneyfirst.com
Phone number: 888-334-6636
North Coast Financial, Inc.
Based in Oceanside, North Coast Financial is a direct hard money lender with over 40 years of industry experience. Together with its affiliates, the company has funded over $1 billion in real estate loans. Specializing in financing for real estate investors and property owners, North Coast Financial stands apart from traditional lenders. Most loans can be funded within five days, with same-day approvals available for qualified borrowers.
Lending clientele: Commercial and residential real estate investors and 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 three years
North Coast Financial, Inc. has been BBB accredited since 2015 and holds an A+ rating. It has a perfect 5-star rating on Google, as clients report that the team delivers seamless and dependable service from start to finish. Reviewers highlight their consistent speed, reliability, and ability to meet commitments without surprises.
Many appreciate how smoothly every stage of the process runs, noting the team’s professionalism and attention to detail. Their efficiency and trustworthiness make clients confident in returning for future projects.
Website: northcoastfinancialinc.com
Phone number: 760-722-2991
Hire an investor-friendly real estate agent who can help you get access to off-market properties at a discount and assess potential rental income based on market trends. HomeLight can connect you with investment property specialists at no cost.
Investing in real estate?
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. This type of financing is 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)
Editor’s note: This post is for educational purposes only and should not be considered financial advice. HomeLight encourages you to consult your own advisor.
At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote strict editorial integrity in each of our posts.