you've exhausted the other options (traditional banks, credit
unions and mortgage companies) and everyone's rejected your
application with a big "DENIED" stamp on top - what
now? Getting a hard-money mortgage might make sense.
Or it might not. This article will help you decide...
This Sounds Like You:
Credit score is less than perfect. Scores typically range
from 350-850. Scores that fall below 600 are considered high
risk borrowers with the risk factor increasing as the score
keeps dropping, scores in this range are cause for main stream
lenders to run for the hills when they see you coming. Now
the magic dividing line between good and bad seems to be about
620-640 depending on who you ask from 640 to 660 is considered
average. If you're between 660 to 690 you're considered to
be pretty good credit wise, and if you're above 690 then excellent
is the word for you.
Income not completely stable and or hard to prove. You
may be between jobs or be self employed or out of work due
to illness or injury. Hard money lenders typically don't worry
much about the "paperwork" as they are lending primarily
against the equity in your home.
There is just more month than money! High interest credit
cards, loans and all of the other debts are killing you financially
every month and either the creditors are calling or are about
to! You just need to wrap up all of these debts into one monthly
payment, a payment you know you can handle!
Need short term money until you can get back on your feet
again, you just need a little "breathing room" to
sort things out
You're a real estate investor who's come across a "screaming
hot deal" on a property and have to jump on it right
away! You have a significant down payment to create an equity
position but don't have the time, desire or ability to jump
through all of "documentation hoops" that a typical
You have a home, condo and or piece of land
that has a fair amount of equity and can be pledged as security.
Or have a family member or close friend who has the same and
is willing to help by pledging theirs...
you might be in a position to realize a benefit by getting
a private loan (aka. hard money loan).
- Here's Some Quick Facts About Hard Money Lenders...
lend based on the equity in the property (e.g. a condo, building,
piece of land) . As the hard asset is the collateral, private
mortgage lenders don´t lend based on your credit.
mortgages they grant are typically for a short period of time
(6 months to a year), they provide an immediate solution for
your short term problems. They don't want to be your bank,
they just want to be your short term solution.
they charge higher interest rates! If you're going to deal
with a hard money mortgage lender this is the way it is. These
folks are not your bank, they make their money by lending
money and as such need to get a return on it. Also unlike
your bank they didn't say "no"
can sometimes add the payments to the overall mortgage amount
or deduct the payments up front giving you an opportunity
to sort things out financially.
can help increase your credit score! Even though they don't
report your mortgage directly to the credit bureau your score
can still rise. If the original purpose of the monies was
to pay off debts that were/are reporting to the credit bureau,
the fact that those debts are now paid off or down will only
work to improve your score. Higher credit scores mean more
options in the future for borrowes that just need some breathing
now for the secret that will save you thousands of dollars
when it comes to hard money mortgages...
an Exit Strategy!
need to be clear on the way you're going to get out of the
hard money mortgage when you're six months to a year is up!
Seeing as this was a short term solution to a short term problem,
you need to ensure that there is a long term or final solution
at the end.
say for example your credit score was less than stellar due
to all of the debts you had reporting to the credit bureau
and because your score was low the banks would not give you
a mortgage so you could pay off these debts and improve your
score, basically you were in a catch 22. Now however with
those debts paid off, credit score goes up, which ultimately
allows you to get a traditional mortgage, so an exit strategy!
if you were buying a house to flip because it was a screaming
hot deal, your exit strategy might be fixing it up and selling.
Just remember so long as it improves your overall situation
for now and into the future, it was worth doing.
Line: Make sure you've thought out your exit strategy!