For homeowners or borrowers who have low credit rating, in notice of default, foreclosure or bankruptcy, they usually immediately get declined by banks. But does it mean that they cannot get a loan and lose their home? No, because there’s still some type of loans that they can take.
Hard money or private money loan is the solution for low credit borrowers and who are in financial distress such as a notice of default, foreclosure, bankruptcy, credit delinquency, judgments, collections, tax liens, etc. Hard money is equity based lending. As long as 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, groups, corporations, insurance companies, and hedge fund managers who are able to offer financing based on equity or collateral from the borrower.
For borrowers who are going through financial hardship such as employment termination/downsizing, medical emergencies, natural disasters, divorce, business loss, or other valid circumstance that puts them in financial distress, hard money lenders are willing to work with them as long as they show an ability to repay the loan or have an ‘exit strategy’ when the term is over.The purpose of obtaining a hard money loan is to provide immediate solutions to foreclosure or low credit borrower that needs immediate cash to payoff 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 regular bank financing. Hard money or private money loans are much higher rates and points. 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.
Hard money lenders or private investors are willing to take on high risks as long as it’s a good investment return. However, 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 will 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. Such creative ways may include a sale contract, lease purchase or the investor going to title and giving time for the homeowner to sell the property. These are not easy to do, but can be done if the homeowner doesn’t have other options.
The advantages of hard money loan allow the borrower to get out from financial distress by paying off debts, save home from foreclosure, avoid bankruptcy, and ability to rebuild credit within 6 months to 1 year time-frame. Hard money offers a ‘great rescue’ for homeowners and borrowers during hard times.