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

Hard money lenders are yet another type of home loan broker–or light beer? Well, certainly and no. Following are some ways in which hard money lenders are actually very different from regular mortgage brokers–and what that can mean for real estate investors. Top Licensed Money Lenders 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 mortgage loans, and make their cash on points and certain loan fees. The lender itself tacks on more closing costs and fees, so when the final is over, the debtor has paid any where 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 lender pays. 

Hard money lenders, on the other side, work directly with private lenders, either individually or as a pool. In the event 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 cash is then put into escrow before the closing.

Alternatively, rather than nearing 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 standards about how precisely the bucks 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 compensates a percentage of those payments back to the private lenders.

Different types of properties–investment vs. owner-occupied

While regular mortgage brokerages 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 more 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 net income 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 set in 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 national and state predatory loaning laws. And private lenders only will 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 certificate suspended–and may even endanger the private lender’s loan.

Saving money with hard money lenders

Given that we’ve discussed some of the dissimilarities between hard money lenders and typical lenders, you can see some of the reasons for using hard money loans for investment properties that you would like to flip or treatment and resell. Here is another reason: by interacting with a hard money lender who has immediate access to private lenders (rather than several levels of brokers), you could be keeping yourself thousands of us dollars in points and extra fees.

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