What are known as “Hard Money Lenders” are what are also known as predatory lenders. This implies they make loans based on the premise that the terms to the borrower have to be such that they will gladly foreclose if necessary. Conventional lenders (banks) try everything they can do to avoid taking back a property in foreclosure so they are the true complete opposite of Moneylender License Singapore.
Within the good old days before 2000, hard money lenders basically loaned on the After Repaired Value (ARV) of any property and also the percentage they loaned was 60% to 65%. Sometimes this percentage was as high as 75% in active (hot) markets. There wasn’t a great deal of risk as real estate market was booming and funds was very easy to borrow from banks to finance end-buyers.
When 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 cash but had no equity (money) of their own in the deal.
These rehabbing investors simply walked away and left the tough money lenders holding the properties which were upside down in value and declining every single day. Many hard money lenders lost everything that they had in addition to their clients who loaned them the cash they re-loaned.
Since that time lenders have drastically changed their lending standards. They will no longer look at ARV but loan on the purchase value of the home which they need to approve. The investor-borrower will need to have an acceptable credit standing and set some money inside the deal – usually 5% to 20% depending on the property’s purchase price and the lender’s feeling that day.
However, when all has been said and done, Moneylender License Singapore carry on and make their profits on these loans from the same areas:
The interest charged on these loans which is often from 12% to 20% according to competitive market conditions between local hard money lenders and what state law will permit.
Closing points are definitely the main source of income on short-term loans and range from 2 to 10 points. A “point” is equal to one percent in 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 likely be loaned out as well as the risk to the lender (investor’s experience).
Hard money lenders also charge various fees for almost anything including property inspection, document preparation, legal review, along with other items. These fees are pure profit and should be counted as points but they are not as the blend of the points and interest charged the investor can exceed state usury laws.
These lenders still take a look at every deal as though they must foreclose the borrowed funds out and take the property back – these are and always will be predatory lenders. I would personally guess that 5% to 10% of all the hard money loans are foreclosed out or taken back with a deed in lieu of foreclosure.
So with the exception of the stricter requirements of Moneylenders Act, there has 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 ability to repay the financing each month or have the required interest only payments. If you visit borrow hard money, anticipate to need some of your money and also have lmupww in reserve to help you carry the financing till the property comes.