All Forum Posts by: Corey Dutton

Since the credit crisis of 2008 and 2009, homeowners and prospective homeowners with bad credit, have had a hard time obtaining home loans. Although the credit limits were lowered for FHA loans, many high net worth individuals who had experienced foreclosures or even short sales, have even higher hurdles to overcome. Loan size limits and seasoning timelines are the issues for those seeking new purchase loans. And for those with refinances who were unable to do streamline loans, obtaining refinances on their homes has not been an easy task.

Although there are plenty of loans for bad credit borrowers, there are not a lot of choices in the area of home loans. The Consumer Financial Protection Bureau, also called the CFPB, is at the heart of the consumer loan dilemma. Because home loans are also classified as a type of consumer loan, homes loans are regulated, and for this reason there are not as many lenders who are even willing to do home loans anymore. This has increased the difficulty for borrowers to obtain home loans. In fact, new requirements for lending on owner occupied properties makes it nearly prohibitive for most lenders to do so. The bottom line is that common sense has “left the building” on home loan requirements since the crisis hit. And by over-regulating home loans you restrict free lending and people’s right and access to credit.

The disappearance of the sub-prime loan after the crisis is just one example of this. By completely eliminating a product that was abused and unregulated leading up to the meltdown in 2008, lenders essentially eliminated the ability for some people to obtain a type of loan that was originally designed for them. An example is a doctor or lawyer who make sufficient income but have a lot of write offs, and/or a business owner who has sufficient income but lost some spec lots during the real estate meltdown and has foreclosures on his credit. These types of people are unable to obtain loans because the sub-prime loan that they used to qualify for, is now not offered by most lenders. What would you say on this topic? Please share your opinion on the future of consumer lending and home loans. With Dodd Frank to force lenders to eliminate consumer stated loan products in January of 2014, what will the self employed do for home loans? Please comment below.

I think that adds a little more perspective, thanks. Also for hard money lenders who only lend on investment properties (non owner occupied residential) and commercial real estate, you don't have issues with RESPA, TIL, and GFEs. This makes it a little easier for sure.

Thanks. I think the most important thing to understand is that these loans all fall under the category of what's called, "non-bank" loans. Whether it's hard money, private money, bridge money, it all falls under a larger umbrella called non-bank loans. This should clear up any confusion on "definitions," well, at least for now.

Because non-bank loans are fairly unregulated, there are a lot of impostors in this arena of lending, what I like to call "bogus lenders." Most of these so-called lenders have no intention of making a loan, but instead, they make money from charging upfront fees to borrowers who are unfamiliar with this area of lending. Not all lenders who charge upfront fees are "bogus," however, and this makes the game of finding the lenders even harder.

For those who have never used a non-bank, real estate loan before, talk to other real estate investors and see who they've used to fund their deals. Resources like BP are good for finding lenders. The best lenders are always busy so they don't really need to do a lot of advertising. For this reason it can be hard to find them; another good reason to ask other real estate investors who they use. Don't pay for the lender lists that charge to get a list of hard money lenders. And sites that charge hard money lenders a fee to list themselves as hard money lenders on their websites are also questionable. Any paid resource is a questionable resource unless properly filtered.

Each non-bank lender has his/her own criteria and requirements for making loans. We base our lending criteria primarily on the real estate being used as collateral for the loan. For rehabs, our first questions are: 'What is the purchase price, how much for repairs, and what is your ARV?' ....Versus other lenders which may ask first questions like, 'What is your credit score and monthly income?'

For commercial real estate we lend exactly the same way, we look at the asset being used for collateral to determine if we want to make the loan. We really don't care if a borrower has a foreclosure or bankruptcy on his/her credit. If the deal is solid, there's always money chasing it!!!

Particularly for auction sales, investment property loans for real estate are the most popular form of financing. Although each trustee sale has its own unique set of rules, the nature of an auction is a fast sale that usually involves a ‘all cash’ transaction. Some real estate investors are able to get investment property loans from their banks to purchase properties at trustee sales. But for the majority of investors, getting a bank loan is an impossible task for a trustee sale purchase. For those experienced in auction sales, investment property loans are an important tool if their own cash isn’t sufficient.

And because so many trustee sales require that buyers must complete the transaction within 24 hours of the winning bid, a bank loan is simply not an option. The majority of buyers use all cash, while some are able to use investment property loans to take down these fast auction purchases. But how can a real estate lender finance an auction purchase as quickly as cash?

A lender doesn’t usually get to inspect a property before lending on it at auction, so it seems difficult to get a loan in a 24 hour timeframe. But many private money, non-bank lenders are set up to be able to fund such investment property loans quickly. With resources that allow these lenders to determine value and proceed towards a closing, financing the purchase of auction sales is an easy task for hard money lenders. For those not familiar with real estate auctions, I recommend finding a mentor or experienced partner to do your first trustee sale purchase. Particularly when using a hard money loan, it’s important to have previous experience in purchasing real estate via trustee sale.

I agree this is a tough time politically. I try hard to avoid thinking about that aspect....

The government shutdown, the proverbial “psyche!” by legislators, certainly caused a stir among private money and hard money lenders. With so many government-backed loans in limbo, many borrowers made a last ditch effort to fund their deals with private money financing. With the speed and ease typical with hard money loans, a real estate investor who stood to lose earnest money or worse the property, ran to bridge lenders.

For me, the government shutdown really opened up my eyes to the possibilities for private companies to take over areas of the public sector. In Utah for example, the Parks were shut down and our State lost millions from the loss in tourism. Why shouldn’t private companies and non-profit organizations own and operate the Parks? I think it was government’s job to stake it out and protect these lands, but why can’t the Parks be operated by private organizations? If a non-profit were running the Parks, the government shutdown would not have affected the State in such a traumatic way.

The same with the slowdown in the real estate market caused by the government shutdown. I see more opportunities in private money lending and specifically, trust deed investing, as government backed financing may be wishy washy in the next couple of years. For example, FHA's pledge to downsize it's multifamily loan programs in 2014 will surely will open up more opportunities in private sector lending. How could we make it work with private sector takeovers of traditionally public sector markets if we had to, such as in the example of the Parks? Please comment.

I agree. If you don't know what you're doing or first time using a hard money loan, do your homework and talk to someone who has done it successfully already!

You can use a hard money lender on your first rehab purchase. Some of them will lend 100% of purchase and repairs but you'll still need to come up with carrying costs, loan fees, and any closing costs you're responsible for on the purchase. Usually people will get someone to "gap" finance those costs on their first deal in exchange for a portion of equity from the property resale. It's hard to find these "gap" lenders and they are usually other real estate investors such as those you'll find here on Biggerpockets. Best to you!

Loved this!!! Thanks for posting.

Private money lenders, also called hard money lenders, don’t operate with the same restrictions imposed on banks and other financial institutions. This gives hard money lenders more flexibility as compared to banks. Here are two more reasons why hard money lenders are financing more investment property this year:

---A Need for Speed: Some banks are taking months to make decisions on their loans. The government shutdown has also contributed to a lot of loans being in limbo.

---Fleeting Opportunities: There are many real estate markets in the U.S. that are very competitive. This is another reason why real estate investors depend on hard money lenders.

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