So called “Hard Money Lenders” are what are also known as predatory lenders. This means they make loans based on the premise that the terms to the borrower have to be such that they will gladly foreclose if required. Conventional lenders (banks) do everything they can do to avoid taking back a house in foreclosure so they are the true opposite of Moneylenders Act.
In the classic days before 2000, hard money lenders basically loaned on the After Repaired Value (ARV) of the property and also the percentage they loaned was 60% to 65%. In some cases this percentage was as much as 75% in active (hot) markets. There wasn’t significant amounts of risk as real estate market was booming and money was simple to borrow from banks to finance end-buyers.
When the easy times slowed then stopped, the difficult money lenders got caught in a vice of rapidly declining home values and investors who borrowed the cash but had no equity (money) of their own in the deal.
These rehabbing investors simply walked away and left the difficult money lenders holding the properties that were upside-down in value and declining every single day. Many hard money lenders lost everything they had along with their clients who loaned them the amount of money they re-loaned.
Since then the lenders have drastically changed their lending standards. They no longer take a look at ARV but loan on the purchase value of the property which they must approve. The investor-borrower must have a sufficient credit score and set some funds in the deal – usually 5% to 20% depending on the property’s purchase price and also the lender’s feeling on that day.
However, when all is said and done, Moneylender Open On Sunday In Singapore carry on and make their profits on these loans from the same areas:
The interest charged on these loans which may be from 12% to 20% based on competitive market conditions between local hard money lenders and what state regulations will permit.
Closing points are definitely the main source of income on short-term loans and range between 2 to 10 points. A “point” is the same as one percent of the amount borrowed; i.e. if $100,000 is borrowed with two points, the charge for that points will likely be $2,000. Again, the volume of points charged depends on the amount of money borrowed, time it will probably be loaned out as well as the risk towards the lender (investor’s experience).
Hard money lenders also charge various fees for almost anything including property inspection, document preparation, legal review, and other items. These fees are pure profit and must be counted as points but are not since the mixture of the points and interest charged the investor can exceed state usury laws.
These lenders still examine every deal just as if they will have to foreclose the financing out and take the property back – they are and constantly is going to be predatory lenders. I might guess that 5% to 10% of all hard money loans are foreclosed out or taken back with a deed rather than foreclosure.
So except for the stricter requirements of Moneylender Rules, there has been no fundamental changes regarding how hard money lenders make their profits – points, interest, fees and taking properties back and reselling them.
These lenders also glance at the investor’s capability to repay the loan every month or to create the required interest only payments. If you go to borrow hard money, expect to need some of your money and have lmupww in reserve so that you can carry the loan up until the property comes.