Hard Money Lenders and Regular Mortgage Brokers – How They’re Different

Hard money lenders are yet another type of home loan broker–or could they be? Well, certainly and no. Following are not ways in which hard money lenders are actually very different from regular mortgage brokers–and what that can mean for real estate investors. Licensed Money Lender Singapore

Private lenders vs. institutions

Regular home loan brokers work with a number of institutions such as big banks and mortgage companies to set up loans, and make their cash on points and certain loan fees. The loan company itself tacks on more closing costs and fees, so when the shutting is over, the lender has paid from a few thousand to many thousand dollars in fees, points and other bills. And the more home loan brokers are participating, the more points the customer pays. 

Hard money lenders, on the other side, work directly with private lenders, either individually or as a pool. In the event that the hard money lender works with the private lenders individually, then for every single new loan request, hard money lender must tackle each private lender until s/he has raised enough money to fund the loan. The amount of money is then put into escrow before the closing.

Alternatively, rather than getting close private lenders individually for every single new loan, the hard money lender may place private money from the private lenders into a pool–with specific conditions about how precisely the cash can be used. The hard money lender then uses predetermined conditions to decide which new loan requests fit those criteria. The loan offering company that collects the loan payments pays them directly into the pool, and the pool pays off a percentage of those payments back to the private lenders.

Different types of properties–investment vs. owner-occupied

While regular mortgage agents could work with residential properties or commercial properties, hard money lenders vastly choose investment properties–also known as “non-owner-occupied” properties (NOO for short). That’s because “owner-occupied” (OO) properties have limitations how many points the hard money lender can accumulate (ex. no greater than 5 points), and the word must be at least 5 years.

With NOO properties, hard money lenders can charge higher points and costs and offer lending options for shorter terms, sometimes even one year or less. While that may seem to be risky and expensive, the money from one good “flip” transaction can certainly make up for higher loan expenses.

Knowledge of deceptive lending laws

Owner-occupied (OO) properties are subject to what are known as predatory lending laws–a place of laws designed to protect consumers, particularly the under-educated, minorities and the poor–from unscrupulous and unjust lending practices.

Hard money lenders must be completely knowledgeable of both federal government and state predatory loaning laws. And private lenders will simply work with hard money lenders, because a regular mortgage broker usually is not familiar with predatory lending laws and may make an oversight that gets his permit suspended–and may even put in danger the private lender’s loan.

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