A California hard money lender qualifies the deal before the borrower. The list is shorter than a bank’s, but every item on it gets checked, and the property, the equity and the exit carry more weight than your tax returns. Across our investor programs, this is what we look for:
- A credit score at or above the program’s published minimum
- A down payment or equity that keeps the loan inside the leverage caps
- A property worth lending on, with title that can be insured
- An exit: the sale or refinance that repays the loan
- Experience that fits the project
- Documents that prove the plan
Each one is covered below for our bridge, fix and flip and construction loans, followed by LLCs, the two California points every borrower should understand, and the 70% rule. For a bridge loan specifically, see bridge loan requirements in California, and for the state overview, our California lending page.
Credit: the published minimum for each program
Each program publishes a minimum score, and a score below it does not open that program:
- Bridge: 650 on the bridge program
- Fix and flip: 620 on the fix and flip program
- Construction: 600 on the construction program
Above the minimum, the score is a pricing input more than a verdict. We read the report for anything that could interfere with the loan or the exit, such as a lien, a judgment or a foreclosure on another property. A recent credit event is weighed against the equity rather than ruled out, and those files tend to land at the conservative end of the leverage. Tell us about anything on the report before we find it. Our post on whether hard money lenders check credit explains how the report is read.
Down payment and equity: what the caps leave you
A hard money loan is sized on the property, so the leverage caps decide your share. Whatever the loan does not cover is your down payment, or on a refinance, the equity that stays in. Here are three hypothetical examples on our published caps, each assuming the valuation supports the numbers.
Bridge. Up to 75% LTV on residential property and 70% on commercial. On an $800,000 house the loan tops out at $600,000, so you bring at least $200,000. At the same price, a commercial building caps the loan at $560,000.
Fix and flip. Up to 85% of the purchase and 100% of the rehab, with the total up to 75% of the after repair value (ARV), and the tightest test wins. Buy at $500,000 with a $100,000 rehab and a $900,000 ARV: 85% of the purchase is $425,000, plus the full rehab makes $525,000, under the ARV cap of $675,000. The loan is $525,000 and your share of the $600,000 cost is $75,000.
Construction. Up to 80% of the total cost of the lot, the build and the interest reserve. A $400,000 lot, a $1,400,000 build and a $200,000 reserve total $2,000,000, so the loan tops out at $1,600,000 and you fund $400,000.
Closing costs, the monthly carry and a contingency come on top, and they come from you. Every rate, term and cap is subject to change, and every loan is subject to underwriting. Our post on LTV vs LTC vs ARV shows how the three tests interact.
The property: value, condition and title
The property is the collateral, so three things about it have to hold up.
Value, and whether you need an appraisal. Every loan starts with a valuation. The lender values the property by an appraisal or a broker price opinion, and which one applies depends on the program, the loan and the property. On a renovation, the valuation produces two numbers: the as-is value today and the after repair value once the work is done. Access is usually the slowest part, so arrange it before the order goes out.
Condition. Deferred maintenance, unpermitted work and anything that makes the property hard to sell all read through to the value. A property that needs real work belongs on a fix and flip loan, where the rehab is funded through draws. That program lends on SFR, condo and townhome, and 2-4 unit properties.
Title. A lender’s title policy is a condition of funding, so the title has to be insurable: existing liens identified and paid through escrow, and the vesting matching the borrower on the loan. Order the preliminary title report early and read it the day it arrives.
The exit: how the loan gets repaid
Every short-term loan is repaid by something else, so the exit is underwritten as carefully as the property.
A sale. Supported by closed comparable sales of finished properties nearby, not by list prices.
A refinance. The property has to qualify for the takeout loan on the day you need it. For a rental, that means a long-term loan sized on the rent, so check the rent and the new lender’s leverage against your payoff before you close.
On a construction loan, the 12 to 18 month term has to cover the build and the sale or refinance that repays it. Our bridge and fix and flip programs carry no prepayment penalty, so those loans can be repaid the day the exit is ready.
Experience and documents
Experience requirements follow the risk of the project:
- Bridge: none required on the residential bridge. The large-balance bridge asks for comparable experience.
- Fix and flip: first time flippers allowed.
- Construction: two prior ground-up projects for the ground-up product.
A first time flipper is underwritten on the plan and the contractor as much as on the borrower, so a written bid from a licensed contractor carries real weight.
The fix and flip program publishes its documentation list: an application, a schedule of real estate owned and proof of funds. The ground-up construction product publishes the same three. Add the purchase contract and, on a rehab, a line-item budget that prices each trade. Proof of funds should show cash you can reach, not equity you would have to sell.
Do you need an LLC?
Not for the loan to count as business purpose. A business purpose loan is defined by what the money is for: buying, renovating or building investment property rather than meeting personal, family or household needs.
Most investors still borrow through an LLC or another entity, and most investment loans close that way. It keeps the borrower, the title and the purpose consistent, and it keeps one project’s books apart from the next. Two cautions. The members usually sign a personal guaranty, so the entity does not remove your personal responsibility for the loan. And entity paperwork causes avoidable delays, most often a registration that has lapsed. Which structure suits you is a question for your attorney and accountant. What we need from it is in LLC vesting for investment loans.
Business purpose and licensing in California
Two points apply to every loan made in the state.
Purpose. Federal Truth in Lending rules exempt credit extended primarily for a business, commercial or agricultural purpose (12 CFR 1026.3). That is a large part of why an investor loan can close in days. A loan for personal, family or household use is consumer purpose, and on a home that means consumer lending rules, with their own disclosures and waiting periods. If that is what you need, say so on the first call.
Licensing. California licenses mortgage lenders and brokers, so check any lender’s license before you send a bank statement. Ours are published: Loan Goat Inc., Company NMLS 1416824, Branch NMLS 2554618, and both can be looked up on NMLS Consumer Access. The Department of Real Estate’s borrower resource page links to the state and federal agencies that license lenders and brokers.
The 70% rule
The 70% rule is an investor’s screen for flips, not a lender requirement: the purchase price plus the renovation budget should not exceed 70% of the after repair value. The other 30% has to cover financing, holding costs, selling costs and your profit.
On the fix and flip example above, 70% of the $900,000 ARV is $630,000. Take off the $100,000 rehab and the rule caps the purchase at $530,000, so buying at $500,000 passes.
The rule and our caps answer different questions. The caps limit what we lend, and the rule limits what you should pay. Pay $600,000 for the same house and the caps would still allow a loan of up to $610,000 (85% of $600,000 plus the $100,000 rehab, under the $675,000 ARV cap). The rule fails, though: $700,000 of cost leaves $200,000 of a $900,000 sale for financing, holding, selling and profit. A loan being available does not make the margin safe.
Before you apply
Bring the address, the price, the budget if there is one and how you plan to repay the loan. If the deal does not fit a program, we will say so before you pay for a valuation. Our standard process closes in 5 to 7 days once the file is complete, and as fast as 3 days on a clean file. The fix and flip program carries the full published terms for a renovation, and in our home county the San Diego bridge, fix and flip, construction and DSCR pages cover the local detail. When you have a property, send it through our loan request or call (619) 617-2797.
