What To Do When You Can’t Get a Conventional Loan

Conventional loans may be the most common loan option available, but there are plenty of scenarios where this type of loan just doesn’t work.

If you find that you are unable to qualify for a conventional loan, what other options do you have? Do you have to wait until you can someday qualify?

Fortunately, investors have alternative options to “traditional” mortgages such as conventional loans. These options are tailored to the unique needs of borrowers who may not have the documentation required to qualify for conventional financing.

Let’s discuss the reasons an investor may not qualify for a conventional loan, and how a hard money loan from a private lender can offer the flexibility you need.

Why a borrower may not qualify for a conventional loan

Conventional loans are surprisingly difficult to qualify for, despite being the most common loan type.

This is because they are focused on a borrower’s financial history and employment history, including a high credit score, and low debt-to-income ratio (DTI), and require a down payment of at least 20% to avoid paying private mortgage insurance (PMI).

Many borrowers, such as investors, business owners, or self-employed individuals, are unable to meet these requirements and are left without any suitable alternatives.

This group of borrowers cannot easily prove their income with pay stubs, W2s, or tax returns. They need a faster, more flexible, and more reliable alternative to fund their deals.

Additionally, conventional loans have loan limits and property limits that can hold back experienced investors. 

This is where a hard money loan from a private lender comes in.

When would you need a conventional loan vs. a hard money loan?

A hard money loan is a fast, flexible loan option for investors that is more focused on the value of the property you want to purchase than your financial history.

Let’s take a look at the characteristics and strengths of hard money loans vs. conventional loans:

Hard money loan

• Perfect for short-term scenarios such as fix-and-flip projects, construction, or properties you plan to sell quickly
• Can also be long-term, depending on the scenario
• Can qualify for a loan based on the property’s after-repair value (ARV) rather than its current condition
• Fast, flexible financing in a matter of days or weeks

Conventional loan

• Helpful only for long-term investments
• Qualification relies heavily on a strong credit history and financial stability
• Borrowers must meet requirements and stay within parameters established by Fannie Mae and Freddie Mac
• Takes an average of 47 days to close
• Generally does not provide funding for renovations or repairs

Often, real estate investors will use a hard money loan to fix and flip a property or for bridge financing and then refinance to a long-term source of financing.

Sometimes, this long-term source is a debt service coverage ratio loan (DSCR) that has long-term options for rental properties.

Overall, the right loan for a borrower depends on their specific circumstances and goals.

The major benefit of a hard money loan vs. a conventional loan is the speed, which is crucial for real estate investors looking to secure a deal and dive into a new project without the red tape of a bank or other financial institution.

How to qualify for a hard money loan from a private lender

Private lenders such as Park Place Finance supply hard money loans to qualified borrowers.

These lenders are able to pull from their own capital to fund deals so that they’re able to offer more flexibility with loan terms and approval criteria. They also are more willing to work with borrowers who don’t meet traditional lending standards.

But what does it mean to qualify with a private lender?

Hard money loan requirements vary by loan type, property type, project type, and other scenarios, but the lending process for hard money loans overall looks much different than the process for a conventional loan.

Real estate investments that are well-suited for hard money include:

• Fix-and-flip
• New construction
• Single-family or multifamily properties
• Short-term or long-term rental properties

Rather than supplying income and employment documentation, hard money lenders are more interested in the property’s ARV or expected cash flow, depending on how you’re using the funds.

Private money lenders are also interested in building a true partnership with borrowers for years of successful deals to come.

Can a private money lender work with my broker?

We can’t speak for other private money lenders, but Park Place Finance can work with your broker — and we can legally pay broker fees so your existing broker or lender doesn’t get cut out of the deal.

How to choose a private money lender

Due to the nature of hard money deals, transparency, honesty, and open communication are crucial to their success.

Private money lenders can provide the capital you need for your real estate projects, but it’s essential to select the right lender who aligns with your goals and offers favorable terms.

Consider the following factors when choosing a lender:

• Where they can lend
• Closing times
• Funding speed
• Application and underwriting process

Choose a private money lender backed by years of experience and countless successful deals.

Park Place Finance is a direct lender with in-house capital. We have over $1 billion in loans funded since 2006. 

We lend nationwide, including 47 states for fix-and-flip loans and 42 states for DSCR loans.

Depending on your loan type, we can close in a matter of days or weeks.

Park Place Finance offers the following loan products:

• Fix and flip
• Debt service coverage ratio (DSCR)
• Bridge loans
• Construction loans

You can expect to work with a dedicated account executive throughout the process, with dedicated departments for underwriting, processing, and servicing to ensure a fast, streamlined process from start to finish.

Explore your loan options with Park Place Finance

Fill out our simple online form when you’re ready to get started. We’ll ask you questions about your scenario, including:

• What kind of borrower you are
• What kind of loan you need
• What kind of property you are financing
• Whether you have identified a property
• Property address
• Your estimated credit score
• Zip code
• Contact information

If you’re simply looking for more information first about your loan options or hard money lending, fill out our contact form or call us at 866-407-1599.

At Park Place Finance, we pride ourselves on providing you with a personalized and efficient lending experience. We look forward to partnering with you!

Photo by Sora Shimazaki