"There are private investors who, if the interest rate is high enough and the perceived risk is low enough, they will put the money up," says Pam Strickland, owner of Mortgage Consulting Services in Santa Barbara, Calif. These investors, typically called "hard money lenders", make loans to people who are being turned down due to these and other reasons:
Borrower s FICO scores are below 500 due to recent bankruptcy or bad credit;
Income is unverifiable or borrower lost his/her job;
Balloon payment on existing loan is due now;
Foreclosure is imminent;
Borrower is purchasing odd or non-conforming types of properties (land, mixed use, etc).
"These are temporary fix loans. That's all they are--to help people get out of a bad situation," says Kirk Johnson, a mortgage broker with Sierra Funding Corp. in Denver.
How much equity do you have? If you don't have at least 30% equity, you probably won't be able to get a loan because hard money lenders want to make sure they can make money off your property if they have to foreclose.
Hard-money lenders are harder to find than other lenders, so how can someone get a hard money mortgage? Brokers and other intermediaries who arrange hard money loans "go to people who have money to lend and they match them up with people who can't get money any other way," Strickland says.
If you have low credit scores and need a cash-out refinance for debt
consolidation, a home equity loan (second mortgage) to pay off debt, or you need
a last resort foreclosure prevention solution, you may be able to get a bad
credit mortgage refinance or second mortgage from a hard money lender.
You'll probably pay double-digit interest rates, but a hard money mortgage
may be able to provide the breathing room you need to rebuild your credit and
refinance again later on.
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