Why Hard Money Is Dead; “Healthy” Sub-Prime Lending Is Back
WHAT IS HARD MONEY
“Hard Money” or “Private Money” refers to mortgages made by private (non-institutional or non-bank) investors or funds that focus almost exclusively on collateral (the property) and not on a borrower’s credit-worthiness.
In other words, hard money lenders will give almost anyone a mortgage as long as they have 30% of the purchase price for a down payment.
The best hard money terms involve rates in the 9% to 10% range and origination fees of at least three points (3% of the loan amount).
Since the 2008 meltdown, borrowers with limited documentable income were forced to pursue very expensive hard money options because there were no alternatives.
That is no longer the case though, as the Non-Qualified Mortgage (Non-QM) space is getting much more aggressive and we are almost back to our subprime glory days – but in a healthy way.
NO RATIO LOANS ARE MUCH BETTER THAN HARD MONEY
Our “no ratio” loans allow buyers to finance investment properties with 25% down with minimal documentable income. These loans allow for credit scores as low as 620, and the rates and fees are significantly lower than hard money alternatives.
In other words, “no ratio” loans are now available for most borrowers who would have had to obtain hard money financing for the last eight to ten years.
And the rates and fees are vastly lower.
Last week, for example, we quoted a no points 5/1 ARM in the mid 6% range (to a borrower with 780 score, a 25% down payment, and minimal documentable income).
RECKLESS SUBPRIME IS NOT BACK
I want to emphasize again though that we are not back to the reckless subprime days b/c these loans require large down payments of 25% or more. And, as I have repeated numerous times, it is most often skin in the game that keeps borrowers from walking away from mortgages, and not high payments.
Sometimes hard money is still the only option when there are issues with the property itself (condition, use, zoning, etc.).
But if the only issue is documentable income, hard money is no longer remotely competitive.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646