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When Is A Hard Money
Loan An
Appropriate Option?
 Hard money
(private money) fills a niche
in mortgage lending and provides alternate funding for your clients
who have specialized needs or too many credit problems for
conventional financing.
Many brokers have clients who would pay higher
rates to gain access to capital, including non-traditional funding,
and who have the amount of equity available to guarantee payment.
Who Benefits from the Use of Hard Money?
Here are a few mainstream examples of broker
clients who benefit from the use of hard money:
- Borrowers that need quick funding for
time sensitive loans
- Borrowers who want to use equity for a
real estate investment
- Borrowers who want short term loans
- Borrowers who have lost bank loans
because of previous declines
- Borrowers who want to avoid the hassle of
institutional loan processing
- Borrowers who want a loan that has more
flexible terms and conditions
- Borrowers who cannot qualify for bank
assistance, due to:
- Poor credit
- Tax liens
- Other liens
- Bankruptcy
- Foreclosure
- Divorce
- Medical emergencies
What Benefits Do Hard Money
Loans Provide?
When speed is very necessary to complete a
profitable transaction, it can make sense to pay for short-term
private money rather than walk away from the deal.
Owners of expensive
properties benefit when they want to cash out large amounts of their equity via
refinance loans, equity loans, equity lines of credit or debt
consolidation loans.
Real estate investors use
private money loans because there are no lengthy timelines or
restrictions required by bank loans.
Borrowers facing
foreclosure also benefit. When the foreclosure process starts, the borrower may be
so far behind that conventional lenders hesitate to refinance
the loan. A private money lender may be willing to give your client
a new loan. Your client can use the funds to pay off the original
loan and secure enough time to sell the property and find a new
place to live.
Borrowers who have
temporary problems can use a private money loan
to rebuild their credit. By making payments on time for a year or
two, they create the opportunity for a future refinance at a more
favorable rate.
Borrowers who own properties that do not meet
institutional guidelines also benefit from the use of private money.
Frequently the condition of a property disallows for the initial
financing with conventional money; or, the structure of the deal may
also be a factor. Unconventional property characteristics or
deal structure might
include:
- Needs Improvement
- Needs funds to provide occupancy of
income property
- Not eligible for sale in the secondary
market
- Does not meet requirements for
conventional underwriting
- Held in probate, trust, partnership, LLC
or corporation
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