Hard Money Lenders and Regular Mortgage Brokers - How They're Different

Legal Moneylender Jurong West
Hard money lenders are simply another kind of mortgage broker--or could they be? Well, it depends. Following are several ways in which hard money lenders are in fact very different from regular mortgage brokers--and what that can mean for real estate investors.

Legal Moneylender Jurong West
Private lenders vs. institutions

Regular mortgage brokers make use of a number of institutions for example big banks and mortgage companies to arrange mortgages, making their cash on points and certain loan fees. The bank itself tacks on more closing costs and fees, so by the time the closing is over, you has paid anywhere from several thousand to many thousand dollars in fees, points and other expenses. And also the more lenders are involved, the more points the borrower pays.

Hard money lenders, however, work directly with private lenders, either individually or as a pool. If the hard money lender works with the private lenders individually, then for every new loan request, the hard money lender must approach each private lender until s/he has raised enough money to finance the loan. The cash will be put in escrow until the closing.

Alternatively, rather than approaching private lenders individually for each new loan, the hard money lender may place private money from the private lenders into a pool--with specific criteria about how exactly the money can be used. The hard money lender then uses predetermined terms to determine which new applications fit those criteria. The borrowed funds servicing company that collects the loan payments pays them into the pool, and also the pool pays a percentage of these payments to the non-public lenders.

Various kinds of properties--investment vs. owner-occupied

While regular lenders can function with residential properties or commercial properties, hard money lenders vastly prefer investment properties--also known as "non-owner-occupied" properties (NOO for short). That is because "owner-occupied" (OO) properties have restrictions on how many points hard money lender can collect (ex. no more than 5 points), and also the term must be at least Five years.

With NOO properties, hard money lenders can charge higher points and fees and provide loans for shorter terms, sometimes even one year or less. While that may seem risky and expensive, the net income from one good "flip" transaction can certainly make up for higher loan expenses.

Understanding of predatory lending laws

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

Hard money lenders must be fully knowledgeable of both state and federal predatory lending laws. And private lenders is only going to work with hard money lenders, because a regular mortgage broker usually is not familiar with predatory lending laws and may make a mistake that gets his license suspended--and might even jeopardize the private lender's loan.

Saving cash with hard money lenders

Now that we've discussed a few of the differences between hard money lenders and traditional mortgage brokers, you can see a few of the causes of using hard money loans for investment properties that you simply intend to flip or rehab and resell. Here's one more reason: by handling a hard money lender that has immediate access to private lenders (rather than several layers of brokers), you may be saving yourself 1000s of dollars in points and additional fees.

Furthermore, utilizing a hard money lender can help you quickly obtain the loan you'll need, with the term you want, and with no risk for your personal credit. And when you can develop the appropriate relationship with the proper hard money lender and lenders, you too can be part of the "inner circle" of property investors just who find out about all the best deals first--and are building real wealth.

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