Hard Money vs Conventional Mortgage Financing
7 minute read
April 23, 2021


What makes a financial situation too “complex” for traditional lenders such as banks? When a borrower falls outside of the required limits that these institutions have to follow, it can be difficult to get a mortgage. For these special circumstances, California hard money lenders have stepped up to fulfill the need.

Conventional mortgages have certain regulations attached to them, driven by Congress-created mortgage companies Fannie Mae and Freddie Mac. Hard money mortgages on the other hand are provided by investors or individuals who make lending decisions on a case-by-case basis.

Marquee Funding Group is giving California borrowers opportunities that banks simply cannot. Learn more about hard money vs conventional mortgage options, and how a private money loan could be your best choice for a first or second mortgage, real estate investments, new construction loans, and more.

What is a Hard Money Loan?

Hard money loans are funded by private lenders or investment groups instead of banks. They are excellent for short-term projects such as real estate investing, house flipping, or renovations because they provide quick access to large amounts of cash. 

In addition to quick fix-and-flip projects, Marquee Funding Group is unique in that we are one of the only California hard money lenders offering borrowers long-term consumer loans. These loans range from 10 to 30 years and have fully amortized payment options.

A hard money loan is much easier to acquire than a conventional loan. Private lenders have their own requirements for borrowers and are focused on the merits of the deal and if it makes sense overall rather than the red tape banks are required to focus on. Hard money lenders also can offer a wide range of loan types to suit a borrower’s unique financial needs.

How consumers and businesses can benefit from hard money loans

Along with fulfilling the need for long-term hard money loans, Marquee Funding Group also offers owner-occupied and non-owner-occupied consumer and business purpose mortgages. As a result of the 2008 recession and the Dodd-Frank Wall Street Reform Act, signed in 2010, banks had to work hard to prove that borrowers understood loan risks.

Because of Dodd-Frank, most hard-money lenders stopped offering consumer-purpose loans. These loans offer consumers many options, from purchasing their first home to financing big projects and paying down debts. Marquee Funding Group has worked hard to continue serving this group of borrowers when options are scarce.

Hard Money Loan Application Process Compared to Conventional Mortgage

The application for conventional loans involves digging into years of income and tax documents, job history, debt history, and credit reports. It can take several weeks or months for approval, and a lot of back and forth with a mortgage lender.

Hard money lenders make their decisions based on experience and common sense. They may look at the borrower’s bank statements and assets to make determinations, but they always try to make sure loans get approved, especially when banks have deemed the situation too complicated.

Credit Qualifications

Hard money lenders understand how frustrating it is for California borrowers to be turned away due to their credit score. Sometimes a string of bad luck or a few mistakes made long ago still haunt the borrower. They need to keep moving forward to improve these scores, but they’re stuck in a rut.

Borrowers with a low credit score are seen as a higher risk to traditional lenders, so they often are denied. Even Federal Housing Administration (FHA) loans, which are meant to accommodate those with lower credit scores, still require a score higher than some can reach and require higher down payments if they don’t.

Marquee Funding Group may accept credit scores as low as 500. Credit scores are not the largest factor to hard money lenders, because they recognize there are many other important factors of the deal to take into account.

Debt-to-Income and  Loan-to-Value Ratios

Lenders use a percentage called debt-to-income (DTI) ratio to determine if a borrower can make their monthly mortgage payments. DTI can be found by dividing a borrower’s monthly debt by their monthly gross income. Banks sometimes will accept a percentage up to 50%, but often prefer a lower ratio. Marquee Funding Group accepts a ratio of up to 60%, which can make a huge difference to borrowers.

Loan-to-Value (LTV) ratio is used to determine the amount of money to put into a down payment and is calculated by dividing the loan amount by the appraised property value. Marquee’s LTV is up to 70%, deal-specific. Most lenders offer applicants the lowest interest rate when the LTV is at or below 80%.

Speed of Approval and Funding

Perhaps the greatest advantage of hard money loans is the speed. While conventional loans can take a month or two to be approved, Marquee Funding Group offers same-day approvals and can close on a loan in as fast as seven days.

Examples of Typical Hard Money Loan Scenarios

The flexibility and speed of hard money loans make them ideal for a wide range of scenarios, from simple transactions to complex, unusual financial circumstances. Private money loans probably are best known for being an essential type for real estate investors, but they are just as easily accessible to families looking to build a new home or new doctors with high debt and a short work history. 

Owner-occupied hard money lending is essential for family and business goals, while non-owner-occupied loans are necessary for real estate investors to keep their deals flowing.

Marquee Funding Group offers the following:

  • Loan amounts from $50,000 to $20 million
  • Commercial, industrial, construction, and land loans
  • Single-family, multi-family, and condominium loans
  • Fix-and-flip or fix-and-occupy loans

Real Estate Investors and Fix-and-Flip Loans

Real estate investors and house flippers require fast loans. They need to be able to jump on lucrative deals immediately, and they need a relationship with a hard money lender to make these deals happen. Marquee Funding Group wants to build long-term relationships with brokers and borrowers to make sure these deals come to fruition.

Investors don’t have time to wait for conventional loans, and house flippers often can’t get approval due to loan limits. Hard money lenders can fulfill this need for California investors.

New Doctors and Self-Employed Borrowers

New doctors are in a unique situation that not many other professions experience. They are fresh out of school, meaning they are facing extremely high student loan debts. Of course, doctors can make a lot of money, but when they are just getting established this can take several years of paying down debt, fixing credit, and saving up for a down payment.

Some traditional lenders offer physician loans, but they still lack the flexibility and speed that comes with working with a private money lender. 

New doctors and self-employed borrowers can have issues proving job history and income. Self-employed borrowers are perfect candidates for hard money loans, because their situation will be examined based on common sense and recent income.

Bridge Loans and New Construction Loans

Bridge loans and new construction loans often are used by families or businesses that need quick funds to build or rehab a home or office building. Traditional construction loans require detailed plans and frequent inspections, and bridge loans are considered too complicated. Hard money lenders see these “complicated” deals as simple, everyday transactions.

Settling Legal and Estate Issues

Hard money loans are helpful for settling legal and estate issues. This includes settling a divorce or estate inheritance issue or paying a legal settlement. You also can dissolve a family trust, pay off siblings and heirs, or resolve probate issues. If you’ve had trouble purchasing or refinancing a property with deferred maintenance or safety issues, you can use a hard money loan for that, too.

If you’re ready to move forward with a private money lender after learning more about hard money vs conventional mortgage financing, contact our team today so we can review your unique case. With our honest, upfront approach, we will be able to quickly evaluate your situation. If you already know what you need and are eager to apply, submit your request now.

Photo by Scott Graham on Unsplash

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