When a Hard Money Home Loan is the Best Option: 3 Situations

Using a hard money home loan can be a great asset, in a number of different situations. Hard money loans present you with an alternative to the normal home loans that are available. Although they do not offer the best terms or rates, they offer solutions to difficult loan circumstances. Here are a few situations with a hard money home loan is the best option for you.

1. When Declined at the Bank

Most people will start out by applying for a home loan at a bank or credit union. This should be the first place that you start in most cases because of the lower rates and better terms. If you are declined at the bank, you should then try and get a hard money loan if you need to buy the house.

Hard money lenders work with borrowers that can not get a traditional loan due to bad credit or other special circumstances. Although hard money loans may be more expensive, they will still allow you to get the home that you want. Usually, the costs of the loan are significantly higher, but after a few years, if you continue to pay your monthly obligations, you may be able to get a traditional loan product with better terms, costs and rate.

2. Property Does Not Meet Bank Guidelines

In addition to being declined for personal reasons, sometimes a loan is declined because the property does not meet the bank's guidelines. For example, if it does not pass an inspection, they may not be willing to lend against it. Lenders like to know that a house is in good condition when they lend money for its purchase. Otherwise, they will often decline the opportunity to take the loan.

Many hard money lenders will work with borrowers that want to buy questionable properties. For example, if you want to buy an old house that needs a lot of repairs, a hard money lender may be your best bet. They can get you the money that you need even if the property is in disarray.

3. Facing Foreclosure

Another great reason to consider a hard money home loan is when you are facing foreclosure. If you have fallen behind on your payments, your primary lender may want to foreclose on your home. If you can not work out a solution with them, a hard money lender could be your next best option.

While other lenders would not touch this situation, hard money lenders work under these conditions frequently. They will often lend money to a distressed borrower in return for paying their high interest rates. You can take out a hard money loan, keep your house, and buy yourself some time. Most hard money home loans are short-term when compared to a traditional mortgage, therefore, this may only be a temporary solution. However, if it gives you enough time to sell the house or refinance again, it can keep a foreclosure off of your credit report.