It never ceases to amaze me how rigid banks are in their underwriting of real estate loans.  They have their little box that the property and the borrower must fit in for the loan to happen.  If the loan doesn’t fit in their box, the banker has no idea what to do.  It’s hard for a banker to wrap his head around the fact that the borrower has substaintial equity in a property and ignore or pay less attention to the borrower’s credit or DTI ratios.  That is why hard money lenders exist and why they play an important role in the real estate finance marketplace.  We recognize that the vast majority of real estate backed loans will fall into the banker’s box.  However, hard money lenders are there to fill the gap when they don’t.

When someone inquires about a hard money loan, don’t be suprised to get the question back, “what is the exit?”.  Hard money lenders want to know how you are going to pay them off.  They want the borrower to explain what their strategy is for paying off the hard money loan.  Are you going to refinance the property?  If so, can you qualify based on your income, credit score, income, etc.  Are you going to sell the property?  If so, you need to plan on doing more than just putting up a pretty for sale sign in the yard.  Successful real estate investors spend time thinking about their exit strategy before buying a property.  And remember, always have a backup plan!