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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