What are known as “Hard Money Lenders” are what are also referred to as predatory lenders. This implies they make loans based on the premise that the terms to the borrower need to be such that they will gladly foreclose if required. Conventional lenders (banks) try everything they can do to avoid taking back a home in foreclosure so they are the true opposite of Moneylender Act.
Inside the traditional days just before 2000, hard money lenders virtually loaned on the After Repaired Value (ARV) of any property and also the percentage they loaned was 60% to 65%. Sometimes this percentage was as high as 75% in active (hot) markets. There wasn’t significant amounts of risk as real estate market was booming and cash was easy to borrow from banks to finance end-buyers.
When the easy times slowed and then stopped, the difficult money lenders got caught in a vice of rapidly declining home values and investors who borrowed the money but had no equity (money) that belongs to them inside the deal.
These rehabbing investors simply walked away and left the hard money lenders holding the properties that were upside-down in value and declining every day. Many hard money lenders lost everything they had in addition to their clients who loaned them the cash they re-loaned.
Ever since then lenders have drastically changed their lending standards. They no longer look at ARV but loan on the purchase price of the property which they have to approve. The investor-borrower must have a sufficient credit standing and set some cash within the deal – usually 5% to 20% depending on the property’s purchase price and also the lender’s feeling that day.
However, when all is said and done, Moneylender News Singapore continue to make their profits on these loans from your same areas:
The interest charged on these loans which can be between 12% to 20% depending on competitive market conditions between local hard money lenders and what state law will allow.
Closing points are definitely the main income source on short-term loans and range from 2 to 10 points. A “point” is equivalent to one percent in the amount borrowed; i.e. if $100,000 is borrowed with two points, the charge for the points will likely be $2,000. Again, the amount of points charged depends on the amount of money borrowed, time it will be loaned out as well as the risk to the lender (investor’s experience).
Hard money lenders also charge various fees for nearly anything including property inspection, document preparation, legal review, as well as other items. These fees are pure profit and should be counted as points but are not because the blend of the points and interest charged the investor can exceed state usury laws.
These lenders still examine every deal just as if they will need to foreclose the loan out and go ahead and take property back – these are and also will be predatory lenders. I would guess that 5% to 10% of all hard money loans are foreclosed out or taken back having a deed in lieu of foreclosure.
So with the exception of the stricter requirements of Moneylenders Act, there were no fundamental changes regarding how hard money lenders make their profits – points, interest, fees and taking properties back and reselling them.
These lenders also look at the investor’s capacity to repay the borrowed funds monthly or make the required interest only payments. If you get to borrow hard money, expect to require some of your personal money and possess lmupww in reserve to help you carry the borrowed funds until the property is sold.