Legal Moneylender Jurong West
Hard money lenders are just another kind of mortgage broker--or could they be? Well, yes and no. Following are several ways that hard money lenders are actually very different from regular mortgage brokers--and what that may mean for real estate investors.
Legal Moneylender Jurong West
Private lenders vs. institutions
Regular lenders make use of a number of institutions for example big banks and mortgage companies to arrange mortgages, and make their money on points and certain loan fees. The financial institution itself tacks on more closing costs and fees, so by the time the closing has ended, you has paid anywhere from a few thousand to many thousand dollars in fees, points along with other expenses. And the more lenders are participating, the greater points you pays.
Hard money lenders, however, work directly with private lenders, either individually or like a pool. When the hard money lender works with the non-public lenders individually, then for every new loan request, the hard money lender must approach each private lender until s/he has raised enough money to finance the loan. The money is then put in escrow until the closing.
Alternatively, instead of approaching private lenders individually for each new loan, hard money lender may place private money in the private lenders right into a pool--with specific criteria about how the cash may be used. Hard money lender then uses predetermined terms to decide which new loan requests fit those criteria. The loan servicing company that collects the borrowed funds payments pays them directly into the pool, and also the pool pays a portion of these payments to the private lenders.
Various kinds of properties--investment vs. owner-occupied
While regular lenders can work with homes or commercial properties, hard money lenders vastly prefer investment properties--also referred to as "non-owner-occupied" properties (NOO for brief). That is because "owner-occupied" (OO) properties have restrictions on how many points hard money lender can collect (ex. a maximum of 5 points), and also the term should be a minimum of Five years.
With NOO properties, hard money lenders may charge higher points and fees and offer loans for shorter terms, often even one year or less. While that might seem risky and expensive, the profit from one good "flip" transaction can easily compensate for higher loan expenses.
Knowledge of predatory lending laws
Owner-occupied (OO) properties are subject to what are named as predatory lending laws--a group of laws made to protect consumers, particularly the under-educated, minorities and the poor--from unscrupulous and unfair lending practices.
Hard money lenders must be fully knowledgeable of both federal and state predatory lending laws. And lenders is only going to use hard money lenders, just because a regular large financial company is frequently not familiar with predatory lending laws and may make a mistake that will get his license suspended--and may even jeopardize the non-public lender's loan.
Saving cash with hard money lenders
Since we've discussed some of the differences between hard money lenders and conventional lenders, you can observe a few of the causes of using hard money loans for investment properties that you plan to flip or rehab and resell. Here's another reason: by handling a hard money lender that has immediate access to personal lenders (instead of several layers of brokers), you may be saving yourself thousands of dollars in points and additional fees.
Furthermore, utilizing a hard money lender can help you quickly obtain the loan you'll need, using the term you want, with no recourse for your personal credit. And when you can get the appropriate relationship with the right hard money lender and lenders, you can also participate the "inner circle" of real estate investors just who find out about all the best deals first--and are building real wealth.