So-called “Hard Money Lenders” are what are also referenced to as predatory lenders. This means they make loans based upon the idea that the conditions to the borrower must be such that they will enjoyably foreclose if necessary. Typical lenders (banks) do everything they can do to avoid taking back a property in foreclosure so they are the true opposite of hard money lenders. private moneylender singapore
In the good old days prior to 2000, hard money lenders pretty much loaned on the After Repaired Worth (ARV) of a property and the percentage they loaned was 60% to 65%. Sometimes this ratio was up to 75% in active (hot) markets. Right now there wasn’t significant amounts of risk as the real estate market was booming and money was easy to grab banks to finance end-buyers.
When the easy times slowed and then ended, hard money lenders acquired caught in a vice of rapidly declining home values and investors who borrowed the money but had no equity (money) of their own in the deal.
These rehabbing investors simply walked away and left the hard money lenders holding the properties which were upside down in value and weak every day. Many hard money lenders lost everything they had as well as their clients who loaned them the money they re-loaned.
Since then the lenders have significantly changed their lending specifications. They no longer look at ARV but loan on the price of the property which they have to approve. The investor-borrower must have an acceptable credit score and set some money in the deal – usually five per cent to 20% depending on property’s purchase price and the lender’s feeling that day.
However, when all is said and done, hard money lenders continue to make their profits on these loans from the same areas:
The interest charged on these lending options which may be anywhere from 12% to 20% depending on competitive market conditions between local hard money lenders and what state legislation will allow.
Closing items are the primary source of income on short-term lending options and range from 2 to 10 points. A “point” is equal to one percent of the amount borrowed; i. electronic. if $100, 000 is borrowed with two-points, the charge for the items will be $2, 500. Again, the amount of points charged depends upon the amount of money took out, the time it will be loaned out and the risk to the lending company (investor’s experience).
Hard money lenders also charge various fees for almost whatever including property inspection, doc preparation, legal review, and other items. These fees are pure profit and should be counted as points tend to be not because the mixture of the points and interest charged the entrepreneur can exceed state usury laws.
These lenders still look at every offer as though they will have to foreclose the loan out and take those property back – they may be and always will be predatory lenders. I would guess that 5% to 10% of all hard money loans are in foreclosure out or taken back again with a deed rather than foreclosure.
So except for the stricter requirements of hard money lenders, there have been no critical changes as to how much difficulty money lenders make their profits – points, interest, fees and taking properties back and reselling them.
These lenders also look at the investor’s ability to pay off the loan every month or to make the required interest only payments. If perhaps you go to get cash hard money, expect to need some of your any money and have some in reserve so you can carry the loan before the property is sold.