Private Home Equity Loans (Hard Money)

What is a Private Home Equity/Hard Money Loan?

Private Home Equity Loans, also known as Hard Money Loans, are short-term mortgage products through which a borrower receives funds secured by the equity position of real property. This type of loan is typically issued by private investors. These poor credit equity loans provide primary and secondary financing options to individuals falling outside of conventional and governmental underwriting guidelines. Using only the equity position of one’s home or investment property to determine eligibility, borrower’s credit unworthiness, mortgage lates, judgments, bankruptcies, and other issues do not prevent qualification for this type of poor credit Home Equity Loan.

What type of interest rates should I expect with a Private Home Equity Loan?

As creditworthiness is no longer factored into approval, private money loans are considered on a case-to-case basis for viability and specific terms. Because of this and the risk involved, borrowers can typically expect to see higher interest rates from Hard Money Lenders than those offered through conventional financing and restrictive loan-to-value limits.

How do Private Home Equity Loans loans differ from Conventional, FHA, and VA loans?

Depending on your loan type, traditional mortgage loans can have fixed or adjustable rates and are fully amortized over a period of up to 40 years. Simply put, the entire amount borrowed is paid in full over the course of the loan.

In contrast, Bad Credit Home Equity Loans will almost always be interest-only with terms ranging from 6 months to 5 years. Being interest-only, all payments go toward interest and the principal remains unchanged for the duration of the loan. At the end of the loan term, a balloon payment for the original loan amount is due in full.

What are the benefits of a Private Home Equity Loan?

Private Home Equity loans allow borrowers the freedom and flexibility to obtain financing when all other options have been exhausted and denied by traditional lenders. Since equity position is the primary basis for approval, bad credit, mortgage history, and verifiable income are far less consequential and will not decidedly prevent an individual from qualification.

Private Home Equity Loans can be secured for all types of real estate including owner and non-owner occupied residential, multi-unit, mixed-use, and commercial properties. These Poor Credit Home Equity loans can be utilized for real estate purchases, investment home improvements and renovations, business start-ups, business expansions, business debt consolidations, and more!

Unlike traditional financing which would have barred those with poor credit, Private Home Equity/Hard Money loan transactions offer:

  • Fast approvals and fundings
  • No FICO requirements/restrictions
  • No restrictions on mortgage lates (Note: loan cannot be a “bailout”)
  • Stated income/stated assets
  • Junior liens
  • No foreclosure exclusions
  • Fundings one day out of bankruptcy
  • Emergency and bridge financing
  • Loans for Foreign Nationals, Corporations and Trusts
  • Funds for business start-up, operating expenses, payroll and expansion
  • No monthly payment options
  • Fixed interest rates
  • Flexible loan terms

What are the risks of a Private Home Equity/ Hard Money loan?

While this type of Bad Credit Home Equity loan offers tremendous flexibility and opportunity, they are not without risk and should only be used as a last line of defense.

Cons 

  • Shorter loan terms
  • Higher interest rates
  • Higher loan fees
  • Guaranteed interest periods up to 6 months
  • Interest-only mortgage payments
  • Balloon payment due at the end of the loan term

How long do I have to repay a Private Home Equity loan?

While terms can last 5 years or more, most Private Home Equity loans are amortized over a 40 year period and due in 3 years. If for any reason borrowers require more time, loan extensions are often granted for a nominal fee to borrowers demonstrating consistent, on-time payment histories throughout the life of the loan. An updated appraisal or Broker Price Opinion (BPO) may be required to verify LTV/CLTV prior to approval.

Are there any Prepayment Penalties if I pay off the loan early?

Almost all Private Home Equity loans come with a 3 to 6 month Guaranteed Interest period. Depending on the investor they may enforce this in one of two ways:

  • Guaranteed Interest– borrowers are only obligated to pay the remaining months in their guaranteed interest period
  • Hard Prepay Penalty (PPP)– borrowers are obligated to pay a penalty equal to the guaranteed interest period until the period has ended

For borrowers needing very short-term financing, for example, a period of less than three months, you can sometimes negotiate a Pre-Payment Penalty waiver in exchange for a slightly higher rate. At Adequate Mortgage Services we are happy to discuss all of these options with you and help you come to the best solution for your particular needs.

What kind of documentation is needed to get started?

  • Loan Application
  • Current Mortgage Statement
  • Original Promissory Note (if seeking 2nd Mortgage)
  • Lease Agreements for all tenants (if applicable)
  • Homeowners Insurance Declarations Page
  • Signed Letter of Explanation for Use of Funds
  • Signed Letter of Explanation for Exit Strategy
  • Driver’s License and Social Security Card – front and back