The Changing Nature Of Hard Money Borrowers

Not only has the way hard money loans are underwritten and funded changed but borrowers too. Until 18 months ago hard money borrowers were in situations so difficult that they could not get financing from banks. At the time, up to mid August 2007, subprime loans were available and only a limited numbers of borrowers needed access to hard money loans. These loans were mostly bail out loans or sometimes for “special” properties.

For the past 18 months hard money borrowers profiles have completely changed. Today bail out loans are not being approved anymore except in cases where there is so much equity that the lender cannot loose. Hard money borrowers, today, are investors with good credit or first time borrowers who need to go stated income and who are buying REO properties. Today if a borrower has a credit score below 590 the likelihood that their loan will be funded is low. However, such as everything in private lending there are always plenty of exceptions.

The typical borrower today will be most likely a buyer. In general this borrower will be open to put 30% to 35% down and in some markets up to 40%. The average Fico for current hard money borrower is 670 and up. We see numerous borrowers with Fico above 700 and sometimes above 750. Most borrowers have assets in excess of the down payment and closing costs. However, for first time home buyers there is less reserves than for investors. Finally most borrowers are employed or can show income. This apply primarily to residential borrowers. For hard money commercial borrowers the same apply.