Hard Money Loans are much easier to obtain than conventional bank loans. The approval process for a sHard Money Loan can take sometimes as little as a day and funding can be completed within a week or two, if approved. Whereas, funding for bank loans generally takes 30-45 days or more, upon approval.
Hard Money Lenders are able to look past issues borrowers’ have, such as imperfect credit, inconsistent or non-documentable income history, recent short sales, foreclosures, BK’s, or loan modifications. These reasons are all issues that would prevent a conventional lender from financing a borrower.
While it is much faster and easier to get a Hard Money Loan, there are 3 major reasons why a Hard Money Loan request would be denied.
I. The borrower doesn’t have enough equity in an owned property or doesn’t have enough for the down payment to get approved for a Hard Money Loan
The most common reason for a Hard Money Loan request being denied is that the borrower does not have enough down payment toward the purchase of the property, or not have enough equity to borrow against a property already owned. Our private lenders will typically only lend up to 75% on a purchase and 70% on a refinance. Equity is the key component to the loan, as it protects the private investor, should the borrower default.
II. The borrower cannot make the monthly payments for a Hard Money Loan
When Hard Money Lenders are judging a loan, a major consideration is the borrower’s ability to make the monthly agreed upon payments. The most common way to demonstrate the ability to repay is to have significant income to cover the monthly payments and as well as some cash reserves. If the borrower does not have enough income and little in the bank, this is a red flag to a Private Money Lender.
III. Not having an exit strategy for borrowing a Hard Money Loan
Hard Money Loans are for short-term use primarily. 1 to 3 year loans are the most common, but longer terms of up to 5 years are available in special situations. Because of the short-term nature of Hard Money Loans, a large payment is due at the end of the loan term that was agreed on. The Trust Deed Lender will want to know the borrower’s exit strategy when considering the merits of the loan.
Common exit strategies:
selling another property the borrower owns
selling the subject property
A new Hard Money Loan to refinance
A conventional loan to refinance
Often times borrowers will take out a Hard Money Loan because their credit score is not up to par with them or other issues prevent them from obtaining a traditional bank loan. Once the borrower does this for a few years, this clears up problems with their credit and they’ll be able to refinance into a lower cost conventional loan.
Do not get your loan denied. At Cushner Capital Group, we will do private land loans, hard money commercial, bridge loans and more. We do Inland Empire Private Money, Orange County Hard Money, San Diego County Hard Money, Los Angeles County Hard Money, San Bernardino County Hard money and all over the state.