The New Hard Money Lender

The near future may hold tough times for some consumers seeking financing from mainstream lenders. Today, there are alternatives for borrowers with special circumstances. The new breed of hard money lender is accommodating, understanding, competitive, and expert at smoothing the financial waters.

What is a "hard money" lender? These are non-banking, non-regulated private lenders and small companies who can accommodate borrowers by providing short-term funding based on the value of real estate that has been collateralized for the loan. These are for borrowers that traditional big institutions, and even sub prime lenders, won't consider, such as those with bad credit, facing foreclosure, special needs, or a range of other situations.

As the liberal financial market begins to shrink for borrowers, hard money lenders will step up. Foreclosure rates are slowly increasing and banks will be pulling back on their lending standards and setting stricter guidelines. You'll also see builders being pickier on construction and home improvement loans. It just pays to know where you can get money when you need it most, and today's hard money lender can be your best friend. However, as with anything else, don't trust a smile. Seek a second or third quote, and read the fine print.

How do you qualify for a hard money loan? Borrowers are evaluated similarly to a regular bank loan - appraisal, verify income, assets, credit, and other real property owned by borrower. Hard money lenders traditionally will offer a range of requirements on the loan-to-value percentage, type of real estate and minimum loan size. Rental income of tenants is also considered for the subject property. A few months' payments might be tacked onto the loan and kept in escrow to ensure 6 to 24 months payments are being made. There are other more subjective factors as well, all compensating factors in the loan decision.

The loan will close much faster than a regular bank loan and the fees will be lower. Of course, interest rates will be higher and points will be charged. Typically there is a penalty for early payoff, as well as fees for late payments. The more documentation you can provide, the stronger your loan, and the stronger your loan the more you and your attorney will be able to negotiate better terms for yourself. Make certain, however, that you understand the terms of the deal and you are not getting in over your head.

Where do you find a loan?You should use a reputable attorney or mortgage broker that specializes in this type of loan. Shop around and ask the lenders how long they have been doing this, how large is their portfolio, and where they are located. Make an effort to meet in person, if you can.

Final words of advice: Remember, the hard money loan is short term loan. Do not take one if there is no hope of getting out of the loan, or the property. It is suppose to be a temporary Band-Aid, not a solution. If you think it is too much and you will fail in a few months, sell the house at a discount and move on. In the long run, you will walk away with more money and less stress.