Arbitraries in Hard Money Lending
On January 11, 2018 our office will celebrate having done loans for 30 years. We have personally done and/or supervised thousands and thousands of loans. We have almost seen it all. Not too much surprises us anymore.
So, what does the word arbitrary mean? The dictionary states “based on random choice or personal whim, rather than any reason or system”.
The loans made through my office in the last 6 years, (since the “recession”) regardless of the credit, regardless of the income and regardless of the location, because the property has equity, have not been foreclosed upon in any significant number. Foreclosures have been started (this is your remedy for non-payment), but only 2 have gone to the Court House steps. Those 2 had equity and the lender got all his money and more.
The arbitraries on underwriting a loan are credit, income and location, but as Hard Money Lenders our main concern is equity.
During the recent recession there were foreclosures in great number and EVERYONE was hit – from the 30 year fixed rate borrowers to the hard money borrowers. Values plummeted. During that period it was not credit or income that drove the foreclosure market, but plummeting equity.
So, in the main, we are looking for a loan approval by an individual, who serves as underwriter in their capacity as lender. This approval process ranges from an investor giving a very quick, “I’ll do that loan. When can I fund?” to the investor who has a list of conditions regarding credit, income and/or the property as long as your arm. Many investors settle for the middle ground, simply wanting clarifications on the loan application or about the property.
The underwriting of a Hard Money loan should mainly involve the equity in the home, whether a purchase or refinance. That is statistically what matters. This is a fact borne out of the numbers, just from my office, regarding Hard Money in the last 6 years and from 30 years’ experience with every type of loan available.
My hope is that this “blog” will make the process a bit simpler for you as the investor, and make it easier for you to get your money out there faster because you did not have to pour over the credit or the income.