Second trust deed loans can be a powerful financing tool providing real estate investors with additional funds for various business purposes. However, even though they offer numerous advantages, these loans are not without their challenges. Borrowers often find that traditional banks are hesitant to provide them, specifically because they can be at a higher risk of not recovering their investment.
For this reason, borrowers turn to private hard money lenders such as HCS Equity. In this blog post, we’ll delve into the benefits of second trust deed loans, how they work, and why you should obtain a second trust deed loan from a private hard money lender.
Second Trust Deed Loans Explained
A second trust deed loan, also known as a junior loan or subordinated loan is a type of loan that is secured by the equity in the existing property (just like your primary mortgage). It’s called a “second” trust deed because it ranks behind your primary or existing mortgage (called the first deed of trust) in terms of priority if there’s a foreclosure.
This means that if you default on your loans and your property is sold to repay your debts, the primary mortgage lender gets paid first, and any remaining proceeds go toward the second trust deed. HCS Equity can provide a second trust deeds loan secured by commercial, residential, or mixed use properties throughout California.
Why should I get a second trust deed loan from a private money lender?
Private money lenders serve as an alternative source of financing by providing far more flexible underwriting terms. Second trust deed loans from HCS Equity offer several compelling benefits for real estate investors.
Quick Turnaround
Private hard money lenders are known for their speed and efficiency in funding loans. Unlike traditional banks, which may take weeks or even months to approve and disburse a loan, private hard money lenders such as HCS Equity can often provide funds in a matter of days, usually within 7-10 business days. Appraisal is not required and funds have to be used for business purposes only.
Lower Loan-to Value Ratio
Second trust deed loans from private hard money lenders typically have a lower loan-to-value (LTV) ratio compared to traditional loans. This means that you can secure a loan for a significant portion of the property’s value while maintaining a relatively lower risk.
The specific LTV percentage depends on the lender’s policy but often ranges between 50% to 70% of the property’s appraised value, protecting both the borrower and the lender. HCS Equity limits it to under 50% CLTV (combined Loan-to-Value ratio), however, we remain flexible in evaluating each situation individually and may consider unique circumstances. The monthly payments on any existing first trust deed must be made promptly for a borrower to qualify.
Shorter Repayment Terms
We usually offer shorter loan terms, ranging from six months to two years. This can be advantageous for real estate investors looking for short term capital to acquire a new property, renovate an existing one, keep up with legal fees, or other business-related expenses.
Shorter repayment terms can benefit borrowers investing in real estate properties requiring quick turnarounds, such as fix-and-flip or rental properties. It also means that you can pay off the debt faster, minimizing the interest expenses associated with long-term financing.
Limited Documentation
Compared to conventional mortgage lenders, private lenders typically require less documentation for loan approval. At HCS Equity, we don’t rely extensively on the borrower’s credit history, income, and other financial details. We primarily focus on the value of the property and the borrower’s equity. This streamlined process can save you time and paperwork, making it easier to secure the funds you need promptly.
Easier Qualification Criteria
We have more flexible qualification criteria and are willing to work with borrowers who may not meet the stringent requirements of traditional lenders, such as those with less-than-perfect credit or unconventional income sources. To qualify for a second trust deed loan, you just need to have sufficient property equity.
The Final Words
In a second trust deed arrangement, the lender holds a secondary lien on the property, with the primary lender holding the first lien. This means that if the borrower stops making payments on the first loan, the primary lender has the legal right to foreclose on the property and recover their debt through the sale of the property.
The short-term nature of HCS Equity second trust deed loans aligns with the goals of borrowers who intend to purchase, renovate, or improve a property and then sell it for a profit in a relatively short time frame. These loans have short repayment terms – borrowers usually repay the loan when the property is sold.
Private second trust deed loans are also an attractive choice for borrowers who have a low mortgage rate and don’t want to refinance their existing loan to access their property’s equity.
Contact HCS Equity today to obtain a second trust deed loan with no credit checks or appraisal required.
