Hard money loans have been the solution for many who have been unable to get mortgages elsewhere but there have been changes that have even affected these types of loans.
The most recent changes affect the balloon payments that historically have been a part of hard money loan. As part of Dodd-Frank (the big legislation that changed many of the rules that must be followed when doing residential mortgages), balloon payments were removed as an option on owner occupied consumer purpose loans for all lenders except for those defined as small lenders.
Small lenders were given an exemption until January 1, 2016 during which time they were still allowed to make loans that had balloon payments for owner occupied borrowers. This exemption has been extended and is now due to end on April 1, 2016. There is no indication that it will be extended any further.
Because investors who fund hard money loans do not typically like to lend their money for more than 5 years at a time and because very few borrowers could afford a full principal and interest payment for that short a period of time, this effectively removes almost all owner occupied consumer purpose loans from the marketplace on April 1, 2016.
However, business purpose loans are exempt from this restriction. A borrower who owns a business and wishes to get a mortgage against his home will still be able to use hard money as long as the majority of funds from the loan will be used for his business.
For anyone else who need hard money on their primary residence, they need to get the process started right away so they don’t miss the last opportunity to do so.