So it happened: you were turned away for a traditional loan from a banking institution. You’re allowed to be devastated initially. The reality is that many purchases, like those of property, are not possible to make without major loans. But the question for many is how they can obtain those loans after they’ve been denied loans from major financial institutions. In fact, major lenders are not the only options available for fairly sizable loans. There are also private money lenders available.

But while we’re all generally aware of traditional loans offered by major financial institutions, we may be less aware of hard money loans, which are offered by private money lenders. These loans are just as valid but often go through a different approval process. Therefore, in some cases, they may ultimately be more attainable and could help you achieve your goals. With that being said, let’s explore some of the key differences between traditional loans and hard money loans.

1. The Loan to Value Ratio

When seeking out private money lenders for owner occupied loans, one of the first differences you may notice in the loans is the loan to value ratio offered. A loan to value ratio is essentially the value of the loan compared to the value of the asset being purchase with the loan. In the case of many private money lenders, this is the value of the loan set against a property, as many people seek out private money loans because they wish to buy real estate.

One of the reasons why people are often turned down for traditional mortgage loans is that they simply lack the ability to be approved for the loan to value ratio that they are seeking. Another issue is that they may be uncomfortable with the loan to value ratio that a bank is offering. The loan to value ratio offered by a bank can be as high as 97%, while the ratio offered by private money lenders for owner occupied loans will hover around 60% to 70%. That difference can be significant and should be noted.

2. Faster Process

If you need to get money quickly for a purchase, you should seek out private money lenders for owner occupied loans. There is often a much faster turnaround for hard money loans in comparison to traditional loans. A traditional lender may take weeks or even months to evaluate your prospects as a buyer, at which point, they could still turn you down, ultimately leaving you with time wasted and no funding.

Hard money lenders will usually assess your prospects quickly and determine whether or not you are a candidate within a matter of days, or even less. Then you can make the decision about whether or not you want to continue.

3. More Flexible Options

When speaking to private money lenders for owner occupied loans, you may quickly discover that there is a big difference between them and the bank. Most banks and other financial institutions have become much stricter regarding the approval for loans since the 2008 financial crisis. It’s become much more difficult for high risk borrowers to be approved for loans, especially significant loans.

Hard money lenders are more interested in the collateral you can offer and less worried about your credit score. If you do fail to pay off your loan, the hard money lender will be able to collect their collateral. This often makes them more comfortable with lending in the first place. In other words, they’re able to overlook the issues that could be considered “dealbreakers” by traditional lenders.

4. Less Documentation Required

Part of the reason why traditional loans take so much time to approve (and often aren’t approved) is the documentation expected from people applying for them. This is often extensive and hard to find.

This isn’t necessary with hard money loans. Lenders are more able to indicate their specific documents needed, rather than documents in general.
There are a lot of things to consider when comparing hard money loans to traditional loans. However, each path can ultimately lead you to a loan that fulfills your needs.