Real Estate Articles

Why Borrowers Use Hard Money Loans | By: Pine Financial

Six Reasons Borrowers Use Hard Money Loans

Hard money loans pay investors so well because the borrowers pay above market rates.  Investors often ask me why in the world would a borrower pay 15% interest?  There are at least six reasons which I will explain here.

Bad credit

The easiest to explain is bad credit.  If the borrower has damaged credit it is very difficult to get loans conventionally or through institutional lenders.  Banks typically look at the borrower and qualify them before looking at the collateral.  Hard money lenders are the opposite.  They care more about the property and making sure they are in a strong position and less about the borrower.  Pine Financial will make loans to borrowers with damaged credit, but it is rare.  The only time we consider this is if we are in a really strong position with a solid property.  Most of our clients borrower from us for different reasons than bad credit. 

Documentation of income

This is a fairly popular reason for borrowing hard money.  Like bad credit it is very difficult to get financing if you can’t prove your income.  CPAs are trained to shelter income.  One example is losses carried forward.  A borrower may have taken losses from investments several years ago that they are still writing off on current tax returns.   We care very little about income and understand that self employed borrowers often have more income than they can document.  We want to see solid deals and money in the bank.  As long as we are comfortable that our loan payments will be made based on the money the borrower currently has, we will do the deal.

Condition of property

This one comes up from time to time.  We are in the business of fixing up beat up homes and sometimes the worse shape the house is in, the better deal for us and the borrower.  The problem for the borrower is if the house is not considered livable, a traditional lender will not lend on it.  A few months ago I got a call from a mortgage broker that could not get a deal financed for his client.  The kitchen in the house had been removed making it non livable.  There were no counter tops, cabinets or appliances.  This is great for us and our client because the demolition was already done. 


This is one of the most popular reasons people work with us and other hard money lenders.  Deals can get done fast, in fact they can get done within days.  This makes the offers much stronger for the buyer.  When the buyer can offer a short closing time frame the seller is taking less risk by accepting that offer and will often times accept smaller offers.   Having access to money quickly gives buyers confidence to go out and make a lot of low offers. 

Ease of doing business

Traditional financing is very difficult to get even if you do qualify.  The underwriters are looking for reasons to deny loans so they take a long time and collect a lot of documents.  Hard money lenders look at much of the same documents but are easier to work with and are not trying to kill deals.  Customer service is also much better because you are dealing with another individual that understands the business.

Less money out of pocket

This is by far the most popular reason to use hard money.  Hard money lenders generally will loan a much larger portion of the purchase and repairs.  Traditional lenders will want to see large down payments and will rarely finance any of the repairs. If a borrower can get into a deal with a much smaller amount of their cash, they can do more deals AND their return on investment will be much higher.  We have several clients with large bank accounts.  They will buy one or two houses with cash and then supplement their business by using us.  It is much better for them to pay for hard money then to loss a profitable deal. 

Pine Financial Group, Inc is the leading hard money lender in  the Twin Cities area.  For more information please visit