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What are Hard Money Lending Pitfalls?

As a real estate investor when you first time think to go for hard money lenders

, you are totally unaware of the pitfalls of this non-traditional financing. You may find something which is no more than a conventional loan and that is one of the biggest pitfalls trust me. Let's see how a friend of mine fell in these pitfalls a few years back.

One of my friends who was out trying to find a loan and one of the things he did is he made contact with some guys. Then he selected one of them who made some promises that he will provide funding for him. It was one of the Hard Money Lenders that wouldn't have to report to my friend's credit bureaus on payments as long as he pays them off. He made some false claims that he will provide 100% financing and everything else. It looked so good that my friend decided to lend money from that hard money lender.

After deciding for this loan he moved forward with that lender for processing. The lender actually got all the information from my friend by setting him for a bunch of paper work. He wanted some Tax Returns and Bank Statements and said we will give you some bank statements as well. So my friend worked through all the documentation that has been requested while thinking this is a lot of work to get done for this loan.

So finally they came down to the day of closing. When he showed up at the closing table, he found out that everything full of promise wasn't actually what was delivered to him. First shocking thing he found in closing documents is out that his loan wasn't a hard money loan. He further found out that it was actually a Portfolio Loan that means his loan was going to be packaged and sold out. The so called hard money lender actually approved a traditional loan for him which is also going to affect his credit score. If he close on a traditional loan and pay them off in a couple of months, it was going to have a bearing on his credit scores and a few other similar things.

They also did a traditional loan and closing out several times. It looks really bad on the lenders and lenders don't want to loan to you ever again and it has effects on credit score. So my friend showed up the closing table and he was very upset and he chose not to close on the loan and that's when he became my client as well because he want to choose Hard Money Loans and we actually were able to provide the financing at that time and he was able to close on loan. There was 100% financing. It was not at all going to affect his credit scores as long as he paid us off so we moved forward.

So, I believe and you may as well that all hard money lenders are not graded equal just like not all hard money loans can be graded equally. Secondly, I think it is important to realize that several times we hear stories about people going to the closing table expecting to close on a loan and buyer never makes and the lender that they are consulting for hard money loans is seem impossible to be found and never to be called nor they reply back on any of your phone calls. I think it is really important that you, as a real estate investor, are working with a hard money lender that has a good reputation; a physical website presence and a physical office presence just like Hard money lenders Arizona. If this does not happen actually then you may have a problem.

What are Hard Money Lending Pitfalls?

By: Jeff Risk
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What are Hard Money Lending Pitfalls?