For more articles on private and
hard money lending
By Robert Greenberg
Chief marketing officer
Patch of Land
Illustration by Dennis Wunsch
Hard money, traditional mortgages and crowdfunding
offer different choices for real estate investors
Real estate investors have more options for financing than ever before. Although most
fix-and-flippers use cash to purchase and renovate their investment properties, many
use conventional mortgages and hard money loans. Some investors have even turned
to a new form of lending that has emerged over the past five years — crowdfunding —
which is gaining traction in the residential real estate investment space.
Mortgage originators who want to capture a portion of this residential investment
market should search high and low to learn all they can about the various loan
products and platforms investors use. Armed with an understanding of the benefits
and drawbacks associated with hard money loans, traditional mortgages and
crowdfunding, originators can better advise their investor clients.
View these articles and more at
“Hard Facts about Hard Money,”
“Hard Money Opens Doors to New Clients,”
“Securing Cash for Construction,”
“Always Search for the Best Option,”
Underwriting is just a fancy way of saying, “What are the chances this money I am lending comes back to me and what risks are involved?”
There tends to be more paperwork in the traditional bank route, but the rates and terms are generally
more favorable to the borrower. On the other side, the
speed of underwriting and nature of loan processing
in private money has a much different feel. Both kinds
of underwriting have a home in the lending world. The
choice of which route to take comes down to mortgage originators doing the proper research to determine which type of lender and product will work best
for each client’s specific situation.
Bank and nonbank underwriting
Most residential borrowers experience the traditional
under writing route through a bank or a nonbank lender,
because most people only get a mortgage loan when
buying their primary residence. The same cannot be said
for real estate investors who, if they need financing, most
often go through a private money lender. Either way,
it is important for mortgage originators to help their
borrowers understand how underwriting works and
what is happening.
If you’re a residential mortgage originator, this
explanation should be easy when dealing with a
traditional home loan. Underwriters at banks and
nonbank lenders tend to focus on the borrower. The
asset itself has to meet some basic criteria, but the
strength of the borrower’s finances and ability to repay the loan tends to be heavily weighted in the risk
A good time to have this discussion is when you are
filling out a loan application with a borrower. The traditional underwriting process requires a lot of documentation, so it is important for borrowers to be aware
upfront of what will be required from them as the loan
application moves through the process.
Most originators who do a lot of loans will have a
niche they specialize in, so they have developed a relationship and understanding with the specific lender
that will underwrite the loan and are familiar with their
underwriting procedures. This allows for a smooth
transition between originator and lender as well as
clear expectation setting for the borrower.
When working on a traditional loan, make sure your
borrowers understand the importance of things like
credit, stated income and tax returns, all of which can
play a major role in determining if they will receive the
loan. Although some lenders like having their own particular forms filled out, underwriting forms are normally standardized on loans being sold to Fannie Mae and
Freddie Mac. These standardized forms make it easier
during the underwriting process to calculate things
like stated incomes, debt-to-income ratios and the
financial obligations of the borrower.
There are some drawbacks to dealing with traditional underwriting for both borrowers and originators,
however. The loan process from application to closing
tends to be quite lengthy because there can be a lot of
moving pieces that all have to line up just right for the
loan to be approved. The traditional loan underwriting
process also tends to fail borrowers who have blem-ishes in their personal finances because it focuses so
heavily on those factors.
Private money underwriting
The underwriting performed in the private money
or hard money world is much easier on borrowers
who don’t have perfect credit and financials. It also
can be completed much more quickly, which is often advantageous, especially in the world of real
estate investment. Many originators find private
money underwriting easier to deal with as well
because it is heavily asset-driven and requires little
paperwork to get a transaction to the table.
The downside to this side of the fence is that interest rates at banks and nonbank lending institutions
tend to be more favorable than in the world of private money. Private money and hard money also are
Ian Walsh is vice president of Hard Money Bankers LLC.
He has been a full-time real estate investor since 2009.
He entered the industry by building WeSellHomes2Fix.
From there, he built a property-management company
that was sold in 2015. During his time in the Philadelphia
investment market with Hard Money Bankers, he has
underwritten loans in the Eastern Pennsylvania and South
Jersey markets. Reach Walsh at (215) 839-3271 or
Two Types of Underwriting
Traditional lenders assess risk differently than private money lenders
By Ian Walsh
Continued on Page 48 >>