• Hard Money Lenders and Regular Lenders - How They're Different


    Legal Moneylender Jurong West
    Hard money lenders are just another kind of mortgage broker--or are they? Well, it depends. Following are several ways that hard money lenders are in fact quite different from regular mortgage brokers--and what that may mean legitimate estate investors.

    Legal Moneylender Jurong West
    Private lenders vs. institutions

    Regular lenders make use of a number of institutions such as big banks and mortgage companies to set up mortgages, making their cash on points and certain loan fees. The financial institution itself tacks on more settlement costs and fees, so when the closing has ended, the borrower has paid between several thousand to many thousand dollars in fees, points and other expenses. And the more lenders are involved, the more points the borrower pays.

    Hard money lenders, however, work directly with private lenders, either individually or as a pool. When the hard money lender works together with the private lenders individually, then for every new loan request, hard money lender must approach each private lender until s/he has raised enough money to fund the borrowed funds. The money is then put in escrow until the closing.

    Alternatively, rather than approaching private lenders individually for each new loan, hard money lender may place private money in the private lenders into a pool--with specific criteria about how the money may be used. Hard money lender then uses predetermined terms to determine which new applications fit those criteria. The loan servicing company that collects the borrowed funds payments pays them into the pool, and also the pool pays a percentage of these payments to the non-public lenders.

    Different types of properties--investment vs. owner-occupied

    While regular lenders can function with residential properties or commercial properties, hard money lenders vastly prefer investment properties--also referred to as "non-owner-occupied" properties (NOO for short). That is because "owner-occupied" (OO) properties have restrictions about how many points the hard money lender can collect (ex. a maximum of 5 points), and also the term should be at least Five years.

    With NOO properties, hard money lenders can charge higher points and costs and offer loans for shorter terms, often even twelve months or less. That can be a might seem risky and expensive, the profit from one good "flip" transaction can easily make up for higher loan expenses.

    Knowledge of predatory lending laws

    Owner-occupied (OO) properties are susceptible to what are named as predatory lending laws--a set of laws designed to protect consumers, particularly the under-educated, minorities and the poor--from unscrupulous and unfair lending practices.

    Hard money lenders should be fully knowledgeable of both state and federal predatory lending laws. And private lenders is only going to work with hard money lenders, just because a regular large financial company usually is not familiar with predatory lending laws and may make a mistake that gets his license suspended--and might even jeopardize the private lender's loan.

    Saving money with hard money lenders

    Since we've discussed some of the differences between hard money lenders and traditional mortgage brokers, you can observe a few of the reasons for using hard money lenders for investment properties that you plan to flip or rehab and resell. Here's another reason: by dealing with a hard money lender that has immediate access to personal lenders (rather than several layers of brokers), you might be saving yourself thousands of dollars in points and additional fees.

    Furthermore, utilizing a hard money lender will help you quickly obtain the loan you'll need, with the term you would like, and with no recourse for your personal credit. And if you can get the appropriate relationship with the right hard money lender and lenders, you too can participate the "inner circle" of real estate investors just who learn about all the best deals first--and are building real wealth.


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