There’s no doubt that the novel coronavirus pandemic has impacted virtually all sectors of the U.S. economy, including real estate. As a result, the ability to secure a hard money construction loan during the pandemic fluctuates on an almost-weekly basis. Why? Because construction lenders are trying to navigate through unchartered waters. Here is some important info you need to know if you are looking for hard money loans in Los Angeles or a respected hard money lender.
Reducing Loan-To-Cost Limits
As a result of the uncertain economic environment, many hard money construction lenders have pulled back on funding a number of new loans. In addition, many hard money lenders have scaled back on the release of construction draws on existing loans within their portfolios.
Before COVID-19 hit, a real estate investor could expect a 70-80 percent loan-to-cost on their past projects.Today, a more realistic estimate is 60-70 percentloan-to-cost for the strongest sponsors on the best projects in urban and suburban locations in or around Los Angeles that have a high probability of success once we prevail over the coronavirus.
Opting to Freeze Construction Draws
Some hard money lenders, especially those concerned about the long-term health of the U.S. economy as a result of the coronavirus pandemic, have opted to freeze future construction draws. Why? Because some lenders consider allowing new draws to be too risky or possibly even reckless in this shaky and uncertain economic climate.
Expect Higher Interest Rates
If you need hard money loans to help fund a construction project, do not be surprised if you encounter higher interest rates for a new loan. This is because, based on trends during the coronavirus pandemic, many construction lenders originating new loans have increased their interest rates and loan fees to price in the cost of uncertainty due to the overall economic drivers, in addition to loan-specific factors such as increased likelihood of forbearance and the risk of more foreclosures in the coming months and years due to the economic downturn.
Lenders do not know how long the economy will be impacted by COVID-19. We are months into the pandemic and there are still issues with testing, contact tracing, and so forth. Generally, when there is greater uncertainty and anxiety in the economy, lenders are more inclined to charge a higher interest rate to protect their financial interests.
Does a higher interest rate mean you should not apply for a hard money loan in Los Angeles? Not necessarily. Securing a hard money loan for your real estate venture may still make sense, even at a higher interest rate, to get the deal done.
Have Questions About Hard Money Loans in Los Angeles? Contact PB Financial Group Today
PB Financial Group is a premier direct hard money, private money and bridge lender, who has been providing quick funding since 2006 and have funded over 2700 hard money/private money loans. Our objective is to work to satisfy your financing needs on important real estate projects throughout California in an efficient and effective manner. To schedule a consultation or for further information please contact PB Financial Group at 877.700.3707 or visit www.CalHardMoney.com/ to learn more.
PB Financial NMLS #357614/DRE #01522495