Here’s what can happen if you choose the wrong broker for a hard money loan:

1. The broker you pick doesn’t know where to find hard money investors. He tries to put your mortgage through with traditional lenders and gets turned down. He tells you a hard money loan is impossible.

2. Rather than doing any research into the issue, the broker responds to your queries with “Oh, no, we can’t do that. It’s illegal.” You’d be surprised how many will claim that something is illegal when they actually mean “I don’t know anything about that.”

3. Despite never having completed a hard money transaction, your broker is overconfident. He makes outrageous claims without double-checking the facts. He reassures you that you can take out a hard money mortgage without a down payment or that your interest rates will be the same as those given for traditional loans (both false).

As you can see, choosing a hard money mortgage broker is an extremely important decision and can have a big impact on whether or not your loan goes through at all. Unlike traditional transactions, a lot of brokers don’t have any experience with hard money loans and won’t even know where to begin.

I’d suggest gathering references and calling your top picks to get some information about their business and direct experience with hard money loans. Take a look at my complete article How to Choose a Hard Money Mortgage Broker for some of the most important qualities to consider.

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Answers to Common Hard Money Mortgage Questions

How to Take Out a Hard Money Loan

But, what exactly is a hard money mortgage? And why are so many borrowers interested lately? Basically, a hard money mortgage is a home loan funded directly by an individual investor or group of investors rather than a traditional lender.

Hard money mortgages are often available to borrowers who don’t qualify for traditional loans because of poor credit, short employment histories, or difficult-to-prove income. In order to qualify, investors require that the borrower bring a large down payment to the table. That way, the homeowner has some stake in the loan even though he does not necessarily have the best financial past.

Hard money mortgages are popular with homeowners who need time to improve their credit but want to buy a property now. These loans tend to have very high interest rates, so borrowers usually refinance within a few years.

To learn more see: Hard Money Mortgage Guide

So, why is seller financing such a hot commodity in the eyes of prospective buyers? There are several reasons.

First, sellers are often able to offer financing when banks won’t. A buyer with a poor credit history or self-employment income may have better luck working directly with a seller.

Second, buyers are often able to get seller financing before selling their current property. Traditional banks have become more concerned about buyers juggling two mortgages in today’s market. Sellers are often willing to overlook this problem.

Third, buyers think they’re going to get a good deal on a seller financed home. Unfortunately, many home-seekers are  disappointed when they discover that the best deals in real estate don’t come with funding from the seller. Traditional mortgage rates are extremely low right now. Even if a seller is willing to match bank rates, chances are the home price will be overvalued to compensate.

In a nutshell, seller financing is often a smart choice for potential homeowners who cannot qualify for a traditional mortgage. However, if you can qualify through a lender, you’re likely to get a better rate and have access to a much wider selection of real estate.

For more information see: Seller Financing Basics.

Hard money loans are high-interest mortgages available from private investors. Desperate borrowers with poor credit scores, bankruptcies, no verifiable income, or too much debt often take out hard money loans when they are unable to qualify for traditional mortgages. Hard money becomes a last resort when borrowers cannot meet the lending standards set by banks or government sponsored enterprises such as Fannie Mae and Freddie Mac.

How Hard Money Loans Work

Private investors are willing to create hard money loans in return for charging a very high interest rate (often about 11.5% plus five points for residential home purchases). You meet a minimal set of requirements, make a monthly payment to the investor, and find a way to either sell your property or pay the balance when it becomes due. Hard money loans use the borrower’s property as collateral. They often offer interest-only payments and tend to have shorter terms (usually fifteen years or less). You can take out a hard money loan for either a home purchase or a second mortgage. Read more…

Wells Fargo Alternative Documentation Qualifications

Borrowers must meet traditional lending standards with the exception of proving their income. To prove income, they must submit six or twelve consecutive months of their most recent bank statements. Income is determined by the monthly average of the money deposited.

Wells Fargo Alternative Documentation Loan Terms

The alternative documentation solution may be applied to any personal home loan including both fixed-interest and adjustable loans. Borrowers should expect to pay a higher interest rate than may be offered for traditional qualifications.

Applying for a Wells Fargo Alternative Documentation Loan

You can apply for a Wells Fargo Alternative Documentation Loan by contacting a mortgage broker or calling Wells Fargo directly (1-877-937-9357). You can also visit their website for more details about this program.

Countrywide Fast and Easy Loan Qualifications

Fast and Easy borrowers must meet the standard mortgage qualifications with these exceptions: they are only required to turn in limited documentation, there is no income verification, and there is only verbal job verification. Borrowers must have extremely high credit scores to qualify and put at least 5-10% down.

Countrywide Fast and Easy Loan Terms

Borrowers can use the Fast and Easy program alongside almost any loan including ARMs, fixed-rates, and interest only. Borrowers generally pay for their convenience with a higher interest rate than they would receive through a traditional program.

Applying for a Countrywide Fast and Easy Loan

You can apply for a Countrywide Fast and Easy Loan by contacting a mortgage broker or calling Countrywide directly (1-888-231-7074). You can visit their website for more details about this program.