How Can a Hard Money Loan Help Your Buyer?

Most real estate agents understandably only want to work with buyers that are pre-approved or fully approved with an A-rated Paper Lender.

But sometimes, situations occur where the lender is simply burdened by too much paperwork or too long of an underwriting process to help the buyer and their agent close the deal quickly.

In super-competitive real estate markets, buyers and their agents don’t have time to wait.  That’s when a hard money loan can help.

What is a Hard Money Loan?

A hard money loan is very similar to an institutional loan with a few key differences – notably the speed at which the loan is approved and the requirements involved. Even if property condition or credit is an issue, hard money loans present a much lower barrier to entry and can still be approved.

When Should You Recommend a Hard Money Loan to Your Buyer?

Sometimes, for small and seemingly insignificant reasons, approval from A-rated Paper Lenders goes up in smoke.  Time is not on the buyer’s side. Other times, there simply aren’t sufficient funds needed to make a down payment.  The lender is shuffling their feet and a decision needs to be made.

In cases like these, it’s a good idea to suggest a hard money loan.  But there are other instances, too, where a private equity loan can help.  Most notably:

• If the buyer has issues obtaining credit – Past credit issues like poor credit or delinquent mortgages are a huge red flag to banks and other institutional lenders
• If the buyer has limited income documentation – Limited or no income documentation can also cause a loan to be denied. There are also cases where banks won’t accept the documentation that’s provided – leaving your buyer seemingly without recourse.
• If there are issues with the condition of the property – Issues such as contemplated property additions or deferred maintenance are surefire ways to get a loan application denied with traditional bank financing.
• If it is a type of property that lenders won’t fund – There are certain types of properties that banks and institutional lenders simply won’t fund, including the purchase of:
  • Gas stations
  • Auto repair facilities
  • Churches
  • Vacant land
  • Unpermitted property additions
  • Transactions to “fix and flip”
• If the borrower needs funding FAST – Banks and institutional lenders need a lot of time to mull over paperwork and supplied documentation. If your buyer needs money quickly, a hard money loan could be the right decision – for both you and them.

How to Help Your Buyer Get the Financing They Need

First, always let the buyer know that whenever a hard money loan is obtained, that they’ll need a solid plan in place to pay off the loan. This could be through refinancing whenever the property is acceptable (assuming credit and income are in good status) or simply by selling the property after the proposed updates are made.

Sometimes, the best reason to consider a hard money loan is when there’s an incredibly lucrative business or investment opportunity that won’t be around forever.

No matter what, the buyer should always have a repayment plan in place – that plan could include getting the necessary income documentation, going through the process of credit repair and so on.

You Can Generate Additional Income Too!

As a real estate agent, you can generate additional income by participating in loan origination for your buyer.  This means you can get a commission from the Private Equity Loan as well as a commission from originating the institutional-based refinance.

All you have to do is let us know the address and important points about the deal and we’ll take it from there, providing a lending decision as well as a proposed interest rate, loan terms and closing costs. It’s that easy.  You can even submit the buyer’s information over the phone or through our secured website. All details are held strictly confidential.

Once you submit the loan, it can take approximately 1-2 weeks to get funded. Notice that we didn’t say “approved” since in many cases, approval can be done the very same day. There are some instances where the process can take longer but these are rare and usually deal with title problems or other concerns not initially disclosed by the buyer.

If you’d like to learn more about how a hard money loan lenders can help you and your buyer, give us a call at (818) 584-2424 and we’d be happy to address any questions you may have.