Why borrowers use hard money

Why Borrowers Use Hard Money Lenders (Private Money)

There are many reasons borrower decide to use hard money lenders instead of banks. The main reasons are that hard money lenders are able to provide fast approvals and funding and can provide loans to individuals who have been denied by conventional lenders. The following is an expanded list of some of the reasons borrowers decide to use hard money lenders instead of a bank:

  • The borrower needs the funds quickly to close an escrow

    • Hard money lenders are able to fund very quickly, especially when compared to conventional lenders. For an investment property, a direct hard money lender is able to fund in a matter of days. Funding for owner occupied property takes 2-3 weeks due to the current federal regulations that all lenders must follow.
  • The borrower has a recent foreclosure on their record

    • A foreclosure in the past couple years is typically a red flag for a conventional lender. Hard money lenders are able to overlook these types of issues as long the hard money borrower is otherwise financially strong.
  • The borrower has a recent short sale on their record

    • Hard money lenders are not overly concerned with short sales. Banks generally require the borrower to wait 2 years after a short sale to qualify them for a loan.
  • The borrower has recently been discharged from a bankruptcy

    • As soon as the borrower has discharged their bankruptcy a hard money lender can consider providing a loan to them.
  • The ownership of the property is going to be a trust, LLC, corporation, non-profit or other entity

    • It is much more difficult to receive a loan from a bank when the borrower will be an entity. Experienced hard money lenders are able to make the hard money loan to the entity and then have an individual assume the loan or provide a personal guarantee. Lending directly to an entity is especially beneficial for those who need to borrow against real estate in a probate, estate or trust.
  • The borrower is self employed or does not have sufficient time in his/her current employment

    • Conventional lenders have strict income history requirements and usually require the borrower to have at least 2 years of employment with their current employer. Hard money lenders are able to use other documentation to qualify a borrower for an owner occupied hard money loan such as tax returns, W2s or pay stubs.
  • The borrower does not have the amount of reserves required by the bank

    • Hard money lenders do not typically have specific reserve requirements. The hard money borrower will just need to have sufficient income/cash available to carry the holding costs of the property such monthly mortgage payments, taxes, insurance and maintenance.
  • The borrower wants a simplified qualification process

    • The application process for a bank loan can take 45 days or more and consist of filling out stacks of paperwork. Hard money loans often only require a simple application and loan approvals can be given the same day the application is received.
  • The borrower owns too many investment properties

    • Banks often have arbitrary restrictions of 4 loans per borrower. Beyond this limit the borrower will be denied additional financing. Hard money lenders have no such limitations and are happy to provide funding for as many investment property loans as the borrower needs.

At North Coast Financial, we are hard money lenders (private money lenders) looking for ways to provide loans to borrowers, as opposed to banks that create numerous obstacles and look for reasons to say no. Contact us at 760-722-2991 and find out what we can do for you.