That's because conventional lenders get antsy about mortgages for properties that derive a substantial portion of their value from the land rather than the house. Buyers of expensive properties and those who already own such homes and want to cash out large amounts of their equity via refinance loans also turn to private money. So do real estate investors. These buyers purchase properties on the cheap, fix them up and sell them for profit. They use private loans because the loans come with less red tape and restrictions than bank loans.
Borrowers facing foreclosure make up the last major category of hard money customers.
When someone misses a mortgage payment, that person usually has some leeway to bring the loan current. At that point, the borrower is so far behind that even subprime lenders are reluctant to come in, refinance the loan and start the clock ticking again. A hard money lender, on the other hand, may be willing to give that person a new loan. The customer can use it to pay off the original lender, gaining enough time to sell the property and find a new place to live. Borrowers who miss payments because of temporary problems, such as a job loss, can benefit, too.