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March 06 2017


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

Legal Moneylender Jurong West
Hard money lenders are just another type of mortgage broker--or are they? Well, yes and no. Following are a few ways in which hard money lenders are actually very different from regular mortgage brokers--and what that can mean legitimate estate investors.

Legal Moneylender Jurong West
Private lenders vs. institutions

Regular lenders work with a quantity of institutions for example big banks and mortgage companies to arrange mortgages, and make their cash on points and certain loan fees. The bank itself tacks on more closing costs and costs, so by the time the closing has ended, you has paid between 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, on the other hand, 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 borrowed funds. The cash will be put into escrow before the closing.

Alternatively, rather than 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 money may be used. Hard money lender then uses predetermined terms to determine which new loan requests fit those criteria. The loan servicing company that collects the loan payments pays them directly into the pool, and the pool pays a percentage of those payments back to the private lenders.

Various kinds of properties--investment vs. owner-occupied

While regular lenders can function with homes 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 on 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 can charge higher points and costs and provide loans for shorter terms, often even one year or less. While that might seem risky and dear, the net income from one good "flip" transaction can easily make up for higher loan expenses.

Understanding of predatory lending laws

Owner-occupied (OO) real estate properties are susceptible 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 should be fully knowledgeable of both state and federal predatory lending laws. And private lenders is only going to use hard money lenders, just 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 may even jeopardize the private lender's loan.

Saving money with hard money lenders

Now that we've discussed a few of the differences between hard money lenders and conventional lenders, you can observe some of the reasons for 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 private 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 have the loan you need, using the term you would like, and with no risk to your personal credit. And when you can get the right kind of relationship with the proper hard money lender and lenders, you too can be part of the "inner circle" of real estate investors who seem to learn about all the best deals first--and are building real wealth.

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