What are known as “Hard Money Lenders” are what are also referred to as predatory lenders. This means they make loans based on the premise that the terms to the borrower must be such that they will gladly foreclose if necessary. Conventional lenders (banks) try everything they can do to avoid taking back a house in foreclosure so they are the true complete opposite of Moneylender Act.
Within the traditional days prior to 2000, hard money lenders pretty much loaned on the After Repaired Value (ARV) of any property and also the percentage they loaned was 60% to 65%. In some instances this percentage was as high as 75% in active (hot) markets. There wasn’t a great deal of risk as the real estate market was booming and money was easy to borrow from banks to finance end-buyers.
Once the easy times slowed and then stopped, the hard money lenders got caught in a vice of rapidly declining home values and investors who borrowed the cash but had no equity (money) that belongs to them in the deal.
These rehabbing investors simply walked away and left the difficult money lenders holding the properties that have been 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 money they re-loaned.
Since that time the lenders have drastically changed their lending standards. They no more look at ARV but loan on the purchase cost of the home which they need to approve. The investor-borrower must have a sufficient credit rating and put some cash in the deal – usually 5% to 20% depending on the property’s purchase price and the lender’s feeling on that day.
However, when all has been said and done, Moneylender Singapore Review continue to make their profits on these loans through the same areas:
The interest charged on these loans which can be between 12% to 20% according to competitive market conditions between local hard money lenders and what state regulations allows.
Closing points are the main revenue stream on short-term loans and vary from 2 to 10 points. A “point” is the same as one percent of the amount borrowed; i.e. if $100,000 is borrowed with two points, the charge for that points is going to be $2,000. Again, the quantity of points charged depends on the amount of money borrowed, the time it will probably be loaned out as well as the risk towards the lender (investor’s experience).
Hard money lenders also charge various fees for nearly anything including property inspection, document preparation, legal review, along with other items. These fees are pure profit and really should be counted as points but are not since the mixture of the points and interest charged the investor can exceed state usury laws.
These lenders still take a look at every deal just as if they must foreclose the loan out and take the property back – they are and always is going to be predatory lenders. I would personally guess that 5% to 10% of all the hard money loans are foreclosed out or taken back using a deed in lieu of foreclosure.
So with the exception of the stricter requirements of Moneylender License Singapore, 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 glance at the investor’s ability to repay the financing every month or even to have the required interest only payments. If you visit borrow hard money, anticipate to need some of your personal money and possess lmupww in reserve to help you carry the financing till the property is sold.