What are the reasons a borrower would need a hard money loan?
We often get the question, “Why would a Real Estate Investor, Self Employed Individual or Business Owner need Hard Money?” Followed by, “Why would anyone pay those rates?” Well, after having underwritten and funded over 330 loans, we have learned there are a variety of reasons. Here are the Ten most common reasons we hear from our borrowers about why they would need a Hard Money Loan:
- Loss of bank loans, for any reason, including denial due to:
- Less than perfect credit
- Self-employed (lack of W2 income)
- Lack of stabilized tenancy and income even on newly constructed or rehabbed property
- Minimum reserve requirements
- No bank deposits, bank account or source of down payment funds
- Debt coverage ratios
- Lack of Appraised Value and resulting decreased loan amount based on increased capitalization rates, vacancy factors or expense percentages
- Quick Closing required on a distressed property or short sale situation
- Borrower’s election to avoid the excessive loan conditions and hassle of processing a bank or institutional loan.
- Property has characteristics making it difficult to obtain an institutional loan, including, but not limited to:
- Property condition, disrepair, property types unacceptable to banks
- Partially or nearly completed construction of the improvements
- Loan is needed to increase the occupancy rate and stability of the property
- Subordinated seller financing is being used
- Take out of matured construction financing required on not yet completed improvements
- Short term real estate acquisitions like Fix and Flip or Fix and Rent scenarios where borrowers prefer short term, interest only payments
- Borrower has circumstances making it difficult to obtain an institutional loan including, but not limited to:
- Complex financing structures including pre-existing liens on the property
- Tax Liens (Federal & State taxes, estate taxes, etc.)
- Foreclosures or receiverships
- Bankruptcy (old or recent)
- Other liens (judgments, association, property tax, etc.)
- Property held in probate, irrevocable trusts, family limited partnerships, non-profits, etc.
- Divorce, medical emergency or unemployment
- Cash Out Required beyond conventional or institutional loan guidelines
- Bridge Loan to finance the purchase of a new home while selling a current principal residence
Hard Money Loans provide critical resources for real estate investors and business owners to capitalize on unique opportunities and have an important place in the financing spectrum between low priced but hard to obtain Conventional loans and unsecured business or consumer credit.
Do you have any scenarios where you needed or need a Hard Money Loan? We would like to know