Hard Money Lenders

Would you lend to a borrower in foreclosure? Or someone looking to buy a large ranch whose value couldn't accurately be determined with a standard appraisal? How about refinancing someone's mortgage so the person can take out hundreds of thousands of dollars in cash?

For "hard money" lenders, it's all in a day's work. These private individuals and small local companies operate where even subprime lenders fear to tread, making loans to the desperate and needy the same way regular banks and brokers service traditional customers. They're harder to find than mainstream lenders and they don't come cheap. But they can help hard-luck borrowers make bad situations better.

Brokers and other intermediaries who arrange hard money - or private money - loans go to people who have money to lend and they match them up with people who can't get money any other way.

Home buying the 'hard' way
Hard money lenders charge interest rates and fees that would make conventional borrowers cringe and often base lending decisions on whether there will be enough equity in their subject homes that they can foreclose and still turn a profit. But private money fills a niche in mortgage lending, helping consumers who have specialized needs or too many credit problems to get conventional financing.

Buyers of expensive properties and those who already own such homes and want to cash out large amounts of their equity via refinance loans also turn to private money. So do real estate investors. These buyers purchase properties on the cheap, fix them up and sell them for profit. They use private loans because the loans come with less red tape and restrictions than bank loans.
Borrowers facing foreclosure make up the last major category of hard money customers. When someone misses a mortgage payment, that person usually has some leeway to bring the loan current. But once a 30-day delinquency turns into a 120-day or 180-day one, the lender will usually start the foreclosure process. At that point, the borrower is so far behind that even subprime lenders are reluctant to come in, refinance the loan and start the clock ticking again.

A hard money lender, on the other hand, may be willing to give that person a new loan. The customer can use it to pay off the original lender, gaining enough time to sell the property and find a new place to live. Borrowers who miss payments because of temporary problems, such as a job loss, can benefit, too. They can use the breathing room a hard money loan provides to rebuild their credit. By making payments on time for a year or two, they'll lay the groundwork for a future refinance into a more favorable loan.

Hard money lenders can be difficult to find ...
Most operate only within limited geographical areas because they like to see the properties they're lending against personally and know the area around them. Borrowers can try calling around to various mortgage brokers, some of whom have private investors who do hard money loans or know of people who do. Or, they can check their local newspaper's classified advertisement section. Many papers have listings that read something like this: "Can't get a loan? Call Us. Private Money Available."

Private money mortgages typically have rates well into the double-digits and often come with several upfront points. People who don't own at least 30 percent or 40 percent of their homes probably won't even be able to get a loan.

Despite the pitfalls, lenders say that hard money loans can provide borrowers a lifeline in times of need. Consumers just need to make sure their loans will help get them out of debt, not bury them even further.