Not everyone fits the cookie-cutter model of perfection expected by the majority of lenders—in fact, many people don’t fit that model at all, in spite of being decent, hardworking and reliable.
Even if you do have great credit and you look like a good investment, if the home you want to build or buy doesn’t fit the cookie-cutter model of a “normal” investment, a lender may refuse to finance you.
If for whatever reason you are unable to procure a normal loan, you may want to look into hard money loans.
What is a hard money loan?
A hard money loan is a loan you may be able to get (typically with very high interest) when you can’t get any other type of loan. There are many examples of people who might qualify for a hard money loan.
- Do you want to purchase a home but have very poor credit due to circumstances which are now past you?
- Do you want to buy a home in a remote rural area which no lender wants to invest in due to its location?
- Do you have equity in an expensive property which you’d like to liquidate into millions of dollars of cash?
- Are you emerging from a recent foreclosure?
All of these are situations where hard money can come to the rescue and only represent some of the scenarios where hard money could apply. Hard money is by definition a flexible resource used for unique, individualized cases where mainstream resources aren’t available.
Hard money is often looked at as a last resort because it usually is—and because the high interest rates can be quite a burden. On the other hand, so can not having what you want or need.
Hard money is not only used for mortgages, but also by businesspeople who want to expand but don’t have the venture capital to do so.
Hard money lenders aren’t loan sharks—they’re companies and individuals who can recognize a great investment that others can’t, and who can recognize the unique potential of a special situation.
What should you be cautious about when applying for a hard money loan? Be very aware that you will be paying a high amount for your loan not only in terms of high interest but also in terms of high fees.
Your lender will probably be quite unforgiving too, and may determine whether to fund your mortgage based purely on whether they could profit if they need to foreclose on you. If you are confident in yourself and your resources though, a hard money loan can be the means to achieving your dreams when all other doors have been shut on you.