It isn’t uncommon to hear mortgage industry associates talk about hard money lenders as a last resort. While this may be valid to the degree that many credit seekers who get credit from hard money lenders do so as a last option, there are many cases in which a hard money lender could be sought before a standard financial institution. Let’s take a peek at some situations in which a hard money lender could be a first stop instead of a last measure.

Say a real estate developer has sunk $10 million into a development deal and primarily planned to market properties in January and would then begin to get back their investments funds from the project. As is the case with a lot of such ventures, setbacks may thrust back the start sales date or the project may go over budget, leaving the developer with a dollar negative condition. The developer at this point must sign up for a bridge loan to be able to get through his fund negtive condition to be able to “make it through” before the project starts to fully grasp a dollar positive standing. With a conventional loan, the bank would not push through the financing for the debtor for 4-6 weeks. The developer would fall behind on his primary loan or will not have cash available to finish off the project. The developer requires cash at this moment and in many cases demands the funds for just a 2-4 month interval. In this situation, a hard money lender will be the perfect associate because they can supply a mortgage immediately and effectively.

Another example of a hard money lender condition is a repair entrepreneur who wants a mortgage to fix up distressed homes which are non-owner occupied. Many financial institutions could turn down this loan for the reason that would be unable to verify that the rehabber will be capable to promptly sell the properties for a profit — especially with no current tenants to provide rent to deal with the mortgage. The hard money lender will, in all likelihood, be the sole lender ready to undertake this type of venture.

Another group who might use hard money lenders as a first step rather than a last measure are real estate investors seeking to “flip properties.” When the investor finds a home that they deem to be a fantastic value, they may need fast and secure financing to take, acquire, renovate and sell the property immediately. Anybody planning to flip real estate doesn’t prefer to hold on to the property for a long period and the quick financing from a hard money lender will take care of this need. The financing can also be designed as interest only, keeping the expenses lower. Once the house is bought by the individual who is flipping the property, the principal is repaid and the profit is retained or reinvested into the next venture.

One final case of hard money refers to an individual who finds themselves the foreclosure. Once a property owner falls late on their house payments, many lenders won’t offer them a loan or restructure their existing loan. In some cases, someone who is dealing with foreclosures will obtain a hard money loan to avoid foreclosure proceedings and use the time to sell the house.

A hard money loan is actually a marriage between a borrower in a challenging position (either from a time sensitive viewpoint or because of their bad financials) and a lender who’s risk adverse and is ready to take a risk for a greater return. While hard money lending could be a final option for most, there are plenty of scenarios when hard money is the solution.

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