Hard money has its time and place for borrowers who cannot get traditional financing when they need it. And while it is a typically more expensive route, sometimes losing a great investment opportunity or home in a wonderful area can be costlier. So, why use this pricey avenue?
Speed: In most non-owner or investment property situations, the hard money lender is primarily focused on collateral, and does not pour over tax returns or comply with a mountain of required bank paperwork about the borrower’s financial position. Hard money loans can close more quickly than traditional loans, sometimes in less than a week. Once value and a clear title have been determined, the process can move quickly. This speed can help the buyer in negotiations, particularly if there are multiple offers or the seller faces foreclosure or a time crunch.
Flexibility: Most hard money lenders can be more flexible than traditional lenders when evaluating the merits of a loan. Private Lenders don’t use a standard underwriting process; rather, they evaluate each loan individually based on the equity in the property, location, resale ability, etc. Depending on the situation, the hard money lender may take more or less risk in the loan to value (loan amount) and the interest rate. Sometimes, borrowers have credit or income documentation issues that negate their hopes for a bank loan. Hard money lenders know this is the case when reviewing each loan, and base their risk accordingly.
Bank Guidelines: Conventional mortgage guidelines have become very restrictive in the new banking world, post Dodd-Frank. These rules limit banks from doing common sense loans or making exceptions on loans, where they were done in years past. Ideas like bank statement loans for owner-occupied loans are beginning to return, but for the most part, banks have rigid guidelines that deny many who are worthy.
The two most important factors for hard money lenders are equity and clear title. As a borrower, sometimes the bank is not an option, nor is selling your most prized asset as an alternative. Hard money lenders understand that borrowers occasionally have issues with credit, income documentation, or other challenges. For those hurdles, hard money works.
This article is about non-owner properties. We, at Cushner Capital Group, have investors for these types of properties. We also do owner occupied loans as well, but the rules are different. For answers to questions about investor loans or owner occupied loans, please call us at (760) 845-9035.