It is not necessary that every borrower who is looking for a hard money loan has good credit scores. These are the people, who need some quick cash in advance.
This basically means that these people have a property in their hand and they want to make some good profit on it. They usually want to close the deal as fast as possible and for that, they need financing.
If they have a good credit history, then they could go to the traditional Money Lender but most of them don’t have a good credit history and conventional lenders won’t lend them with a bad credit history as they require a lot of documentation before approving a loan.
These are the people who have found some really good properties but they can’t find funding due to their poor credit history. They are looking for a bad credit lender but it isn’t very easy to find one.
Hard money or private money lending is basically a substitute financing in comparison to the typical traditional financing. Their rules and regulations are quite different as they are privately held. They make their own rules of funding and they don’t believe in selling their loans to Wall’s Street or any other secondary market.
They are also termed as money lenders for bad credit and their popularity is on the rise due to the recent credit crunch and worsening conditions of banks.
These are the people who work on their own and therefore, don’t follow any specific guidelines. Their lending is based upon the property and not the borrower.
That’s why; they are able to lend you even if you have bad credit scores because if you have good collateral in hand, then they will fund you irrespective of your poor job or credit history.
Before going to the money lenders for bad credit, one should make sure that their tangible asset is good enough i.e. they have a piece of real estate in hand, which seems promising.
This shows that hard money loans are based upon equity. The amount of loan approved will be based upon the equity of your property.
Usually, when you are going to a conventional lender, you need to put 20% equity but that won’t be the case with money lenders for bad credit. They will ask you to put more equity down than 20%, as their loans are only based upon that.
You need to understand that if you have a bad credit or bankruptcy in the past; it will definitely affect your loan. It won’t be that easy to obtain a private money loan in that situation.
For example, if you had a bankruptcy discharged in the last 12 months or if you are in the middle of bankruptcy, then you won’t be able to get a hard money loan. You’ll have to wait for some time.
On the other hand, if you have tax liens or judgments attached to the property, then that will make hard money loans very difficult for you as well.
Also, if you have collections, then some bad credit lenders will be fine with it but there would be others, who would not like to lend you until you sort that out.
But the most important thing is the property. If your deal is really good and the comparables are good enough, then hard money lenders would fund it. That’s it.
Let’s say, if you have bought a property of $125,000 worth for $25,000, then you have a very good chance that you will get the funding but if you are buying that property for $100,000, then the chances would be very low.