Hard Money Loans for Homeowners Who Need Emergency Money
Traditional mortgages are typically for terms of between 15 and 30 years. You may have qualified for the loan when you first bought your house, but along the way you hit a few bumps. This happens to everyone, but if you are in jeopardy of foreclosure, hard money loans may help you bail out of trouble until you can get back on your feet again. Unlike traditional loans that use your creditworthiness to determine whether they will lend you money, hard money lenders use your house as an asset to back the loan. The amount of loan that you can obtain is based on the value of your home and the equity in it. These are often called bridge loans, because they can help you bridge the gap between your current crisis and the time when you can once again qualify for a traditional mortgage.
Borrowers Behind on Their Mortgage
For borrowers who are behind on their mortgage, a hard money loan, or private loan, can be used as a tool to refinance your home quickly. The original loan is paid off with the hard money loan. Then, you can refinance to get better terms when your financial situation improves. This is one way to save your home from foreclosure risk. They often work in a specific geographic area, because they are familiar with the housing market and the potential to turn around the investment, if this loan to should go into default.
Borrowers Who Need Repairs
Sometimes things occur that cannot be helped, such as natural disasters. Roofs and foundations eventually wear out. Large ticket items such as these are often beyond the capabilities of many homeowners to fix due to a lack of cash. This is another circumstance where a hard money loan can be a lifesaver. There are many reasons why you may not qualify for a conventional loan if your house needs repaired, other than poor credit. For instance, you may have multiple mortgages and no longer qualify for any additional mortgages.
If the value of your home has decreased, conventional lenders may not be willing to give you additional financing. Hard money lenders may consider the value of the home after repairs are made as the factor on which to base the loan. Hard money lenders can be the perfect solution for homeowners who need to make costly repairs and need cash fast.
Owner-Occupied Homes vs. Investment Properties
Some hard money lenders will not allow loans for owner occupied homes. These companies will only finance loans for investment properties. The reason for this is that they must comply with federal and state laws that are not necessary for investment loans. These laws are in place to protect the homeowner from predatory lenders. They are designed to give the homeowner the best possible chance for being able to remain in their home, while obtaining the financing that they need.
When financing homes that are owner-occupied homes, the payment must include escrowed property taxes and insurance. This is to prevent these amounts from accumulating and risking the loss of the property for unpaid taxes. With owner occupied loans, the borrower must also demonstrate the ability to repay the loan. In the case of investors and homes that are not owner-occupied, the equity is often enough. Owner-occupied loans cannot be made based on the equity of the home alone. The last requirement for making an owner occupied hard money loan is that the borrower must complete a consumer credit counseling class before signing the final loan paperwork.
Loans for owner occupied homes take longer to close on than those for investors. Borrowers must be aware that the interest rates are higher than for conventional loans, but the repayment time is shorter. In a crisis, this can be a solution for staying in the home, rather than losing it to foreclosure. However, this is a risky strategy and one must be certain that they will be able to repay the loan on time. Otherwise, a borrower could find themselves in even greater trouble than before.
Private money loans can be a solution for homeowners who need fast cash for repairs, or to provide a temporary solution due to a job loss, unexpected hospital stay, or other circumstances that can cause them to become behind on their conventional mortgage. They are not meant to be a long-term solution, but a temporary solution to buy more time until they can get back upon their feet. It is important to consider all options before seeking a hard money loan in this situation. It is always best to try to work with the original lender and try to work out a solution, but if this is not possible, a hard money loan may be the best option.