Hard Money Loans: Borrowers Solution For Low Credit, Foreclosure And Bankruptcy

A couple from Palmdale, California called my office Monday afternoon asking if we can help them save their home. They are three months delayed in their mortgage payments and their house is in foreclosure. The couple has kids, they love their house and they don't wish to move anywhere else. They have low credit, in foreclosure and have high debt ratio thus banks turned them down. Understanding the urgency of the couple's situation, I began asking them questions about their current financial situation, what affected their credit, how many mortgages they owe, liens, collections, judgments, etc. At the end of our phone call conversation, I told the borrower that we could get them a loan through hard money investors. The borrower was shocked to hear that they at last could get a loan and avoid losing their home. Applying for a loan through regular banks is subject to limited loan to value, debt ratio, income documentation and credit rating guidelines. For homeowners or borrowers who have low credit rating, in notice of default, foreclosure or bankruptcy, they will instantly get rejected by banks. Does this mean that they can't get a loan and lose their home? Definitely Not!

Hard money or private money loan is the answer for low credit borrowers and who are in financial distress like notice of default, foreclosure, bankruptcy, credit delinquency, judgments, collections, tax liens, etc.  Hard money is equity based, non-fico based lending.  Provided that the borrower has equity left in the house after the deductions of all mortgages owed, liens, charge offs and collections, interest payment delays, and prepayment penalty.  Hard money represents hard-earned money of individual investors, corporations, groups, insurance companies, and hedge fund managers who are capable of giving financing based on equity or collateral from the borrower. 

Hard money lenders or investors have a standard 65% Loan To Value (LTV).  In certain situations there are investors who could go up to 70-75% LTV.  Sometimes hard money investors can go even up to 80-90%LTV, but in this case they will demand to be on title to secure their investment.  At 65%LTV, it is possible to submit a loan as stated income.  Beyond 65%LTV will require full income and asset documentation.  For borrowers who are going through financial hardship such as employment termination/downsizing, medical emergencies, natural disasters, divorce, business loss, or other valid condition that puts them in financial distress, hard money lenders are willing to work with them provided that they show an ability to repay the loan or have an 'exit strategy' when the term is over. 

Hard money is short term financing which lasts within 6 months to 1 year, however, 2 or 3 year terms are also available.  The idea of getting a hard money loan is to offer immediate solution to foreclosure or low credit borrower that requires fast cash to pay off debts or the existing loan has already matured and needs to be paid off. 

Hard money is the last recourse for borrowers if they can't get standard bank financing.  Hard money or private money loans are normally much higher in rates and points.  The rate can range from 8.5, 11, 12, 13 up to 15% dependent on loan to value and income documentation.  Although hard money is non-fico based which could go below 500 mid score, the credit history of the borrower can also have an impact on the rate that they are getting.  The high rates and points for hard money is an investment caution for hard money lenders or private investors.  High risk borrowers present a potential headache to the investors when they default in payment.  Going through the foreclosure proceedings, attorney fees and selling the property turnaround time are factors that bring high liability to hard money lenders. 

The reality of hard money is 'high come back vs. high risk' business relationship. Hard money loan lenders or private investors are willing to take on high risks provided that it's a good investment return. Not all borrowers have good paying ability, which caused the private investors to charge higher rates to prepare for future risks and carry the property through foreclosure and re-sell the property. If refinancing for hard money does not work for homeowners/borrowers who are in notice of default, foreclosure or bankruptcy, there are other creative ways that they can get help from hard money investors. These creative ways may consist of a sale contract, lease purchase or the investor going on title and giving time to allow the homeowner to sell the property. These are not easy to do but can be done if the homeowner doesn't have other alternatives. The advantages of hard money loans can allow the borrower to get out from financial distress by paying off debts, saving home from foreclosure, avoiding bankruptcy, and having the ability to rebuild credit within 6 months to 1 year timeframe. A hard money loan can provide a 'great rescue' for homeowners and borrowers during hard times. 

Hard money or private financing is available for both residential and commercial properties.  Common loan programs include Raw Land, Construction, High End Million Dollar Estates, Apartments, Hotels, Motels, Mixed Use Properties, Office Building, Shopping Mall, Mobile Homes in Park, Gas Station, Restaurant, Hospitals, Golf Courses, Casinos, Convalescent Homes, Grocery Stores, Manufactured Homes, and even Business Loans.