So called “Hard Money Lenders” are what are also known as predatory lenders. This means they make loans based on the premise that the terms to the borrower need to be such that they will gladly foreclose if needed. Conventional lenders (banks) try everything they can do to avoid taking back a home in foreclosure so they are the true complete opposite of Moneylenders Act.
Inside the good old days just before 2000, hard money lenders basically loaned on the After Repaired Value (ARV) of the property and also the percentage they loaned was 60% to 65%. In some instances this percentage was as much as 75% in active (hot) markets. There wasn’t a great deal of risk as the real estate market was booming and cash was easy to borrow from banks to finance end-buyers.
If the easy times slowed then stopped, the difficult money lenders got 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 difficult money lenders holding the properties that were upside-down in value and declining every day. Many hard money lenders lost everything that they had along with their clients who loaned them the money they re-loaned.
Since that time the lenders have drastically changed their lending standards. They will no longer look at ARV but loan on the purchase value of the house which they have to approve. The investor-borrower must have a sufficient credit rating and set some funds in the deal – usually 5% to 20% depending on the property’s purchase price as well as the lender’s feeling on that day.
However, when all has been said and done, Moneylender In Singapore continue to make their profits on these loans through the same areas:
The interest charged on these loans which may be from 12% to 20% based on competitive market conditions between local hard money lenders and what state regulations will permit.
Closing points would be the main source of income on short-term loans and range from 2 to 10 points. A “point” is equal to one percent from the amount borrowed; i.e. if $100,000 is borrowed with two points, the charge for your points will be $2,000. Again, the quantity of points charged depends on the amount of money borrowed, enough time it will likely 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, as well as other items. These fees are pure profit and really should be counted as points but are not because the mixture of the points and interest charged the investor can exceed state usury laws.
These lenders still examine every deal as if they must foreclose the borrowed funds out and go ahead and take property back – these are and also will be predatory lenders. I might guess that 5% to 10% of all hard money loans are foreclosed out or taken back using a deed rather than foreclosure.
So aside from the stricter requirements of Moneylender In Singapore, there have been no fundamental changes concerning 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 capability to repay the financing each month or to have the required interest only payments. If you visit borrow hard money, anticipate to need some of your own money and have lmupww in reserve so that you can carry the financing up until the property comes.