High Risk Money Lenders Offer Loans That Traditional Banks Are Not Willing To Make
Today’s high risk money lenders are mostly private lenders and small companies that specialize in making loans that the banks avoid. Some people call them hard money lenders, but regardless of the name that you use, you will find that there are many advantages to this unconventional source of financing, particularly if you are a real estate investor or rehabber. There are always profitable opportunities in the real estate market, but in order to take advantage of them, you must have a good source of funding. Let’s look at a few examples.
High risk loan lenders can help you buy property with “no money down”. You may have read a book or watched a video about buying property with no money down. You may have even tried a few deals. Hopefully, you were somewhat successful. If you went to a bank for financing, they probably required that you make a down payment to the seller, probably about 20% of the purchase price.
Now, some investing “experts” suggest that you use credit cards or other sources for down payments and closing costs. We have even heard the suggestion that you borrow it from a friend or family member. They say that you have nothing to lose because you know that you will be able to repay all of the loans once you resell the property.
Well, first of all, the bank will want to know the source of your funds and it is illegal to make false statements on a loan or credit application.
The same is true for most high risk money lenders, but they consider things that the banks do not. If the amount that you need to borrow is less than 65% of the fair market value after repairs or upgrades are completed, they will finance 100% of the purchase price. They do not require a down payment. So, they can truly help you buy with no money down.
Another example: high risk loan lenders can help you buy when banks turn you down. Most banks avoid financing rehab projects completely, even when the investor has the money for down payments, closing costs and improvements. Banks usually deny loans for vacation property. They will refuse to fund building in areas without fire hydrants or those that are too close to flood plains. In some cases they will turn you down if your property is oceanfront or for any number of reasons that they consider risky.
They all have different considerations and, in the case of rehab projects, the time involved in getting a loan approved will sometimes mean that you lose your seller.
The bottom line is that high risk money lenders offer options when the banks have none. And they offer better options for certain investors. If you are planning a rehab project, they might be the right choice for you.
James has been in real estate for over 30 years and is an expert on residential and commercial hard money loans. He is a regular contributer to Hard Money Guide, a comprehensive resource for those looking to secure funding for real estate projects.
