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The property does not meet bank standards for a mortgage. If a project is nearly completion and occupancy permits are not yet in place, a developer may seek a hard money bridge loan to pay off construction loans, complete the project, and then put permanent refinancing in place.
A property that has a low occupancy rate may not qualify for bank lending. But a hard money lender may see the potential of the property and fund a bridge loan to bring the property up to higher standards and rent it out.
Some special use properties, such as retirement homes, rehab centers, long term care facilities, etc, may find it difficult to obtain bank mortgages. Much of the property’s value is in the business aspect, rather than the buildings and a small infraction could mean that state or local authorities can shut it down. Once used as such a specialized facility, the property may have reduced value in resale or take a long time to refurbish for another use and resell. Hard money lenders tend to take on greater risk than banks and may fund such properties.
The borrower’s credit score is insufficient to land a bank loan. Hard money lenders do not generally lend based on credit or FICO scores. These private lenders look at the property, the ability of the borrower to make monthly payments, and to repay the loan within a given timeframe.
The borrower may have had a bankruptcy in the past 10 years. Banks will rarely lend in such situations. Once again, hard money lenders are better suited to manage the risk.
Even if a borrower has perfect credit and the property being purchased or refinanced is in excellent condition and qualifies for a conventional bank mortgage, the borrower may have an opportunity that requires funding within a few days or weeks. In that event, a bank is generally not a viable option. Most hard money lenders can fund loans anywhere from a few days to a month or so
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