Those that have formerly owned a home that was subject to a foreclosure or short sale know their timelines before lendability will once again be possible. Depending on the nature of their distressed transaction, they may be looking at anywhere from two to as many as seven years before they can get back in the game. What if it is too long? What if, given all that has happened on the market as of late, the perfect house at the perfect price comes along? Thanks to hard-money lenders, bounce-back buyers have one alternative to robbing a bank and purchasing all-cash.
To check out a great article that breaks down the world of hard-money loans and lenders, CLICK HERE.
Basically, hard-money loans are short-term, high-interest loans that can be used to get back into the housing market ahead of schedule. Hard-money lenders don’t focus on traditional sticking points such as credit scores, job histories and past foreclosures, instead focusing on asset valuations and loan-to-value ratios. While not ideal, a hard-money borrowing strategy can be made to work. If a bounce-back buyer knows that they will be able to qualify for conventional financing in two years, they can buy a home using a hard-money loan with a two year term, and refinance upon qualification for conventional financing.
Hard-money loans enjoy a few advantages that can’t be found in most other places. For starters, lenders are more focused on the interest they make on their money on the short term, which means that late payments are often met with fees and/or extensions, as opposed to foreclosure proceedings. Hard-money loans are also much faster, with less red tape and hoops to jump through, allowing buyers to present more attractive offers.
On the flip side, hard-money brokers charge a healthy premium for linking buyers with the source, as much as 5% of the loan value in some cases. Additionally, most hard-money loans include a balloon payment at the end of the term, which can burn buyers who can’t refinance at that time. Lastly, the interest rate can border on usury, possibly offsetting any added value to purchasing in the short-term while conditions are so sweet.
Regardless of the risks, buyers across the country are getting into, or back into homes through hard-money lending. Stricter lending standards has upped the demand for such financing, which is likely to gain popularity as more bounce-back borrowers look to return to the market.
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