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Real estate buyers sometimes turn to hard money lenders

Homebuyers in Delaware and around the country generally seek financing from traditional lenders and choose between conforming, nonconforming, FHA and VA loans, but there are situations where unconventional sources of money may be useful. Those who take out a conventional mortgage usually expect to keep their loans for many years, but those seeking to renovate and flip a residential property quickly or require short-term financing of some sort may choose to approach a hard money lender rather than a mortgage broker.

These lenders base their decisions on the value of the property involved rather than the applicant's income, employment or credit history. They tend to operate on a nationwide basis and are rarely familiar with local market conditions. While property appraisals are an important part of the conventional mortgage application process, they are crucial when requesting money from hard money lenders.

In addition to traditional real estate appraisals that feature three or more comparable properties, hard money lenders look at tax assessments and broker's price opinions (BPOs) to develop a completer picture of residential real estate values. However, tax appraisals are not always current, and they do not provide any information regarding the interior of a property. BPOs also have their drawbacks as real estate values are often inflated by brokers hoping to improve their commissions.

Hard money loans may seem attractive to property buyers or homeowners with troubled credit histories or difficulty proving their incomes or employment, but this type of financing is generally offered for shorter periods and no more than 70 percent of a property's appraised value. Attorneys with experience in residential real estate transactions could assess the merits and drawbacks of different financing options and identify provision to which lenders are not always eager to draw attention.

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