Professional Loans Blog

Unfortunately many homeowners are faced with the situation today that they may be losing their homes because they have a financial setback and they may not be able to make their mortgage payments for a period of time.

This can happen from a number of different situations including loss of job, illness, unfortunate financial circumstance etc. If someone finds themselves in one of these situations it could lead to them getting behind on their mortgage. Many of these people can not come up with the chunk of money that their mortgage company is asking them to in order to get caught up. Some of these people may have the opportunity to get what is known as a hard equity loan or hard money loan to save their home.

What is a hard equity loan? A Hard equity loan is a term used to describe a loan that is based almost solely on the hard equity in the property. It’s an equity - based loan. Doesn’t necessarily have to do with the persons job, does not necessarily have to do with someone’s credit.

There are institutions that are set up to do exclusively hard equity loans, and even more often there are individual private lenders that will fund hard equity loans.

The benefits of a hard equity loan are that you could have bad credit, or horrible credit because you are currently behind on your mortgage, but you have enough equity in the property this might not matter. If you do not have an acceptable job history this does not have to be held against you like with a bank loan. The entire loan is based on the fact that you have substantial equity in the property.

Hard Equity Loans have a very important place in the world of being able to borrow money. Most banks and mortgage companies turn their back on borrowers who have had a set back and haven’t shown the ability to make their payments on time. A hard equity loan can help someone save their property from being lost to foreclosure if there is enough equity to support the loan.

How much equity is enough?

Well, most hard equity lenders will go no higher than 65% of the value of the property as determined by the lender. There may be a few that will go slightly higher, but not by much. So if the value of the home is $300,000 you would be able to borrow only around $200,000 on a hard equity loan.

The harsh reality.

Although these loans appear to be safe for the lender, they still represent a high risk of getting timely payments and they typically charge for the this risk. These loans are much more expensive than bank loans, and are often not long term loans. They may have a balloon payment after 2-5 years. Make no mistake about it, these loans are simply a band-aid, short term solution to an ugly situation. They can take someone in a financial hole and give them the opportunity to catch up and begin to work on repairing their credit until they can secure a better, longer term loan in the future.

Consider the story of Rosa. Rosa came to us with an unusual story, she had gone through a foreclosure a few years ago on a home that she had owned for a very long time with a small mortgage on it. She had lost her income for a time, and got behind, and out of shame and lack of knowledge simply let her home go into foreclosure. She lost her home completely and it could have been avoided. Imagine her surprise, when…

A few months later, she received a check in the mail from Countrywide. To her surprise, the check was for $160,000 dollars. The lender had sold the home at a foreclosure auction and sold it for enough money to pay back the money owed plus attorneys fees, and there was $160,000 left over, which belonged to Rosa.

Rosa is one lucky duck. She is the exception. Who knows how much equity she still ended up losing. Its a miracle that she got that much. The point is, she was not even aware of this kind of option, and it could have helped her stay in that house that she clearly had so much equity in.

Hard Equity Loans can be found typically through loan brokers that work with both institutions and private lenders.

Craig Garcia is recognized as one of the Nation’s leading experts on Mortgage and Equity Management. He is a Licensed Mortgage Lender who has been helping consumers with financing solutions for over the past ten years.

He has created a service that matches homeowners and investors who are frustrated with strict bank lending practices to Private Lenders who fund Hard Equity loans.