So named “Hard Money Lenders” are what are also referred to as predatory lenders. This implies 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) do everything they can do to avoid taking back a home in foreclosure so they are the true opposite of Moneylender Rules.
Inside the traditional days prior to 2000, hard money lenders virtually loaned on the After Repaired Value (ARV) of a property and the percentage they loaned was 60% to 65%. Sometimes this percentage was up to 75% in active (hot) markets. There wasn’t significant amounts of risk as the real estate market was booming and funds was easy to borrow from banks to finance end-buyers.
If the easy times slowed and after that stopped, the hard money lenders got caught in a vice of rapidly declining home values and investors who borrowed the amount of money but had no equity (money) of their very 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 they had along with their clients who loaned them the amount of money they re-loaned.
Ever since then the lenders have drastically changed their lending standards. They will no longer take a look at ARV but loan on the purchase price of the property which they have to approve. The investor-borrower will need to have a satisfactory credit standing and put some cash inside the deal – usually 5% to 20% depending on the property’s purchase price and also the lender’s feeling that day.
However, when all is considered and done, Moneylender In Singapore still make their profits on these loans from your same areas:
The interest charged on these loans which is often from 12% to 20% based on competitive market conditions between local hard money lenders and what state regulations allows.
Closing points are definitely the main source of income on short-term loans and vary 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 that points will likely be $2,000. Again, the amount of points charged depends on the sum of money borrowed, the time it will be loaned out and the risk to 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 should be counted as points however are not since the combination of the points and interest charged the investor can exceed state usury laws.
These lenders still take a look at every deal as if they must foreclose the borrowed funds out and take the property back – they may be and constantly will likely be predatory lenders. I would personally guess that 5% to 10% of all hard money loans are foreclosed out or taken back having a deed rather than foreclosure.
So with the exception of the stricter requirements of Moneylender Act 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 capability to repay the loan monthly or make the required interest only payments. If you go to borrow hard money, expect to need some of your own money and also have lmupww in reserve to help you carry the financing until the property is sold.