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

Legal Moneylender Jurong West
Hard money lenders are just another type of mortgage broker--or could they be? Well, it depends. Following are a few ways in which hard money lenders are actually quite different from regular mortgage brokers--and what that may mean legitimate estate investors.

Legal Moneylender Jurong West
Private lenders vs. institutions

Regular lenders work with 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 costs, so by the time the closing has ended, you has paid anywhere from several thousand to several thousand dollars in fees, points and other expenses. And also the more mortgage brokers are involved, the greater points you 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 finance the loan. The cash is then put into escrow before the closing.

Alternatively, instead of approaching private lenders individually for every new loan, hard money lender may place private money from the private lenders into a pool--with specific criteria about how exactly the money may be used. The hard money lender then uses predetermined terms to decide which new loan requests fit those criteria. The loan servicing company that collects the loan payments pays them directly into the pool, and also the pool pays a percentage of those payments back to the non-public lenders.

Various kinds 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's because "owner-occupied" (OO) properties have restrictions about how many points hard money lender can collect (ex. a maximum of 5 points), and also the term must be a minimum of Five years.

With NOO properties, hard money lenders may charge higher points and fees and provide loans for shorter terms, often even twelve months or less. That can be a may seem risky and expensive, the net income in one good "flip" transaction can certainly make up for higher loan expenses.

Knowledge of predatory lending laws

Owner-occupied (OO) properties are subject to what are known 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 state and federal predatory lending laws. And lenders is only going to use hard money lenders, because a regular large financial company is frequently unfamiliar with predatory lending laws and could make a mistake that will get his license suspended--and might even jeopardize the non-public lender's loan.

Saving cash with hard money lenders

Now that we've discussed a few of the differences between hard money lenders and traditional lenders, you can see some of the causes of using hard money loans for investment properties that you simply plan to flip or rehab and resell. Here's one more reason: by handling a hard money lender who has immediate access to personal lenders (instead of several layers of brokers), you might be saving yourself thousands of dollars in points and extra fees.

Furthermore, utilizing a hard money lender will help you quickly have the loan you'll need, using the term you want, with no recourse to your personal credit. And if you are able to develop the right kind of relationship with the proper hard money lender and lenders, you too can participate the "inner circle" of real estate investors just who find out about all the best deals first--and are building real wealth.

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