Many of the larger traditional mortgage providers are now using sophisticated computer programs to crunch the numbers and determine to whom they will lend and how much. This is often touted as progress and technological advancement, but it is also easy to lose sight of the story behind the data. Bank lenders used to be middlemen to a loan committee, now they’re often middlemen to a computer analysis.

For those borrowers who have been crushed under the wheels of this advancing lending machine, it can be a relief to deal with a hard money lender. Not only are you face-to-face with the decision-maker, but he or she actually wants to hear the story behind your loan request, not just look at a page full of data and numbers.

Here’s an example of how hard money lenders view aspects of your loan application differently than conventional lenders:

• Loan-to-Value (LTV) Rate: Because LTV rates are determined based on property value, how the value is determined can be the difference between being able to fully fund a project and ending up paying for more expenses out of pocket. Banks have to use the lower of assessed value or purchase price, while hard money lenders have the freedom to choose to use the value they believe to be most accurate (in some circumstances, they will even consider the after-repairs value).
• Purchase Price: The main interest that hard money lenders have in purchase price is if it is lower than the value of the property as that indicates that the borrower knows how to find a good deal and that the property will likely be able to be resold for more than enough to pay off the loans.
• Down Payment: For hard money lenders, this is seen as assurance that the borrower has skin in the game and will be less likely to walk away from an investment (default on the loan) if an unexpected problem arises. The amount of the down payment is often more negotiable with hard money lenders than with banks.
• Credit Score: Hard money lenders are willing to listen to, in fact they want to know, the story behind your credit score. A borrower’s explanation of any adverse items or low scores reveals their character in a way that a number on a sheet of paper never will.
• Debt-to-Income Ratio: This is where many people with outside-the-box income (such as those who are self-employed) can run into problems with a bank (or computer) that is only considering the numbers on their tax returns. Hard money lenders will accept proof of income in forms that banks will not as long as the borrower shows that he or she will be able to repay the loan. A recent government requirement making banks responsible for documenting their borrowers’ “global income” can take weeks to fulfill and leads to large amounts of frustration for the loan applicant.

Hard money lenders are typically private individuals or small business owners who feel that lending is about more than numbers, it’s about understanding the borrower’s character and assessing the value of the asset they want to lend against in order to reach a final underwriting decision. In some unexpected ways, today’s hard money lender is acting more like the old fashioned bankers used to act and today’s bankers are acting like blind followers of computerized lending processes.