You’ve met with the owner, you’ve listed the home, marketed it, held open houses, and found a buyer. All the hard work is done, so it should be easy sailing from here, right? Wrong. Any real estate professional with enough experience has seen a situation with an accepted offer in escrow where the buyer has their financing pulled for some minor issue the bank hadn’t stumbled upon until the last minute. With days left until the scheduled closing, the deal is danger of being lost. Bringing in a new conventional lender to fund the loan on a tight timeline isn’t reasonable. All the hard work and expectations of a smooth closing have been flushed down the toilet.
So how can you save a closing at the last minute? The only hope for funding the loan quickly before close of escrow is obtaining a loan from a hard money lender.
The majority of homebuyers and real estate agents are only familiar with one type of financing for a home purchase, which is a home loan through a conventional lender like a bank or credit union. If the conventional lenders are not willing to lend to the homebuyer, financing can still be obtained through hard money lenders. Having a relationship with a hard money lender can help get difficult deals closed as well as save deals if a conventional lender pulls their financing at the last minute in escrow.
Aren’t Hard Money Loans For Investors Though?
Contrary to popular belief, hard money loans can be used for many reasons. A prospective borrower should always pursue a home loan from a conventional lender first, as it is going to be a cheaper option than a hard money loan.
Unfortunately there are many reasons a conventional lender will deny a borrower financing such as recent bankruptcies, foreclosures, short sales or loan modifications. Having a low credit score may also prevent a borrower from obtaining financing. Employment issues can present a hurdle to securing financing if the borrower has less than 2 years of employment history at their current employer or is self-employed. Ever have a client who went out and opened a credit card a week before closing to buy new furniture? Or worse, buy a new car to go with his new house?
None of these issues will prevent a hard money lender from providing financing.
Save That Closing
If the buyers really want the home, hard money may be the best option to get it closed when the lender pulls out at the last minute. It will cost the buyer a little more, but the buyer will get the home and can fix whatever issue popped up and refinance the home into a traditional mortgage at any time.
This obviously isn’t an ideal situation, but it’s always best to be prepared. You don’t want or expect a flat tire, but you always have a spare, right? Developing a relationship with a hard money lender can be that “spare tire” that you hope you never have to use, but you know it’s there if and when you need it.