Using Hard Money Loans to Stop Foreclosure and Save Your Property

Foreclosure can be a scary and stressful situation for any homeowner Unfortunately, it is also an all-too-common occurrence, especially after economic downturns When you fall behind on your mortgage payments, the lender may begin the foreclosure process to reclaim the property. This usually involves auctioning off the home to recoup their losses from the defaulted loan.

However, foreclosure doesn’t have to be the end of the road There are alternatives like hard money loans that, in some cases, can help homeowners reinstate their mortgage and avoid foreclosure altogether Keep reading to learn more about using hard money loans to stop foreclosure.

What Is Foreclosure?

Foreclosure is the legal process that allows a lender to seize and sell a property when the homeowner falls significantly behind on mortgage payments. The foreclosure process begins when you become delinquent on your mortgage loan.

Delinquency occurs as soon as you miss a payment. However, most lenders won’t start the foreclosure process until you are at least 90 days late. The foreclosure process itself can take anywhere from 6 months to 2 years to complete, depending on state laws.

There are a few different types of foreclosure:

• Judicial foreclosure: This is the most common type of foreclosure, used in about 40 states. It involves filing a lawsuit and getting a court order to foreclose.

• Non-judicial foreclosure: This is a faster process that doesn’t require court oversight. The lender can begin the process as soon as you default on the loan.

• Strict foreclosure: The lender takes ownership of the property without a sale. This method is only used in a few states like Vermont and New Hampshire.

No matter the type, the end result is the lender sells your home to try to recoup the amount owed on the mortgage. You lose the property, your equity, and the foreclosure appears on your credit report, damaging your credit score.

How Do Hard Money Loans Help Avoid Foreclosure?

Hard money loans are a potential solution to cure a mortgage default and stop the foreclosure process. These short-term loans are secured by real estate and can provide quick financing.

Here are some of the ways a hard money loan can help homeowners facing foreclosure:

• Reinstate the mortgage: Hard money loans can provide funds to bring your mortgage fully current and stop the foreclosure proceedings. These loans fund quickly, getting you the money you need faster than traditional financing.

• Pay off the mortgage: If you’ve fallen far behind, a hard money loan may give you the funds to pay off your mortgage entirely and prevent foreclosure.

• Buy more time: Even if you can’t fully reinstate or pay off your mortgage, a hard money loan can give you a few more months to get back on your feet financially and avoid foreclosure.

• Tap home equity: Hard money loans are asset-based, meaning you can tap your home’s equity to access funds to halt foreclosure, even if you have credit issues.

Basically, these loans provide fast access to capital that can cure the mortgage default before the lender completes the foreclosure process and takes your home. They are one of the only options that provide quick funding to homeowners already deep into the foreclosure timeline.

Hard Money Loan Requirements

While hard money loans can stop foreclosure proceedings, you will need to meet some requirements to qualify:

• Collateral: Hard money loans are secured by real estate, so you will need equity in your home. Lenders usually lend up to 65-75% of the property’s value.

• Property type: Most hard money lenders will only lend on residential properties and single-family homes. Condos, townhomes, multi-families may be ineligible.

• Credit score: Hard money lenders generally only require a minimum 550-600 credit score, focusing more on the equity in the home.

• Loan term: Hard money loans typically have shorter terms of 6 months to 3 years. You’ll need a plan to refinance or pay off the loan over this timeframe.

• Interest rates: Interest rates are higher than traditional mortgages, often starting around 8-12% or more.

• Points/fees: Expect to pay 2-5 points of the loan amount plus origination fees of 1-3%. Costs are high but can be worthwhile if the loan helps avert foreclosure.

As long as you have enough equity and can qualify based on the above criteria, a hard money loan could help stop the foreclosure process and save your property.

Finding the Best Hard Money Lender

If you decide a hard money loan is the best way to stop foreclosure, the next step is finding the right lender. Not all hard money lenders are equal. Here are some tips for choosing the best hard money lender for your situation:

• Check experience: Look for an established lender with years of experience providing loans to halt foreclosure. They are more likely to fund quickly.

• Seek local lenders: Many experienced hard money lenders operate locally. A local lender will understand the foreclosure timelines and processes in your state.

• Compare rates and fees: Even a point or two difference in rates and fees can mean big savings. Compare offers from multiple lenders.

• Ask about the process: How quickly can they fund the loan? How will they determine your home’s value? Make sure they can fund fast enough to stop the foreclosure.

• Read reviews: Check third-party review sites and the Better Business Bureau for feedback on the lender’s customer service and lending practices. Avoid lenders with complaints.

The most recommended hard money lenders for foreclosure avoidance include:

• LendingHome – Offers fast funding in as little as 5 days and loans up to $2 million across 21 states. Closing costs start around 3-4%.

• Lima One Capital – Can fund loans in as little as 1 week. Works with residential properties in over 40 states. Closing costs are roughly 4-5%.

• patchof.land – Specializes in foreclosure bailouts with rates starting at 7.99% and loans up to $5 million. Charges 2-3% origination fee.

• CrossFlow Funding – Pre-funds loans in 2-3 days. Works with lower credit scores and high amounts of equity. origination fees start at 3%.

I would recommend researching a few of the top-rated lenders in your area to find the one best equipped to expedite financing and stop foreclosure fast. It helps to get multiple loan quotes to compare options.

The Pros and Cons of Using Hard Money to Stop Foreclosure

Hard money loans can quickly provide capital to reinstate a mortgage and halt foreclosure. But there are also some drawbacks to weigh when considering these types of loans:

Pros

• Fast funding available in days or weeks
• Approve borrowers with low credit scores and equity
• Limited documentation and underwriting
• Avoid foreclosure and property loss

Cons

• Higher interest rates and fees than conventional mortgages
• Require high equity of at least 50%
• Short repayment terms of 6 months – 5 years
• Prepayment penalties may apply
• Not available from all hard money lenders

As you can see, the speed and accessible credit standards of hard money loans make them one of the only options to stop a foreclosure already in progress. For many borrowers, the higher costs may be worth it to save their home. But make sure you go into the loan eyes wide open about the repayment terms and exit strategy.

Alternatives to Hard Money Loans

If you don’t have enough equity for a hard money loan or want to avoid the higher costs, here are a couple alternatives to consider:

Mortgage Reinstatement Loans

Some lenders offer specific loans to bring delinquent mortgages current and stop foreclosure. Terms may be more affordable than hard money loans. However, make sure the lender can fund quickly enough.

FHA Loss Mitigation Programs

If you have an FHA mortgage, these programs like Special Forbearance can allow you to suspend or reduce mortgage payments for 12 months to avoid foreclosure. Contact your lender.

Selling the Property

As a last resort, you may be able to sell the home through a short sale and recover some equity before the lender forecloses. This requires the lender accepting less than the full mortgage balance.

A hard money loan is usually the quickest option available, especially if already mid-foreclosure. But shop around for the most affordable financing terms possible.

Using Hard Money to Save Your Home From Foreclosure

Losing your home to foreclosure can be devastating financially and emotionally. But hard money loans offer a glimmer of hope to borrowers in dire situations. These asset-based loans provide fast access to capital that can reinstate mortgages and stop the foreclosure process in its tracks.

If you meet the requirements, have sufficient equity, and find a reputable hard money lender, you may be able to get a loan approved in days to avert an impending foreclosure