Hard money lenders are just another sort of mortgage agent –or are they? Following are a couple of ways that hard money lenders are in reality quite different from regular mortgage brokers–and what that can mean for property investors.
Standard mortgage brokers work with numerous institutions like large banks and mortgage companies to arrange mortgages, and make their money on points and certain loan fees. The bank itself tacks on more closing costs and fees, so by the time the closure is over, the debtor has paid anywhere from a few thousand to several thousand dollars in fees, points and other expenditures.
Hard money lenders, on the other hand, work directly with private creditors, either independently or as a pool. If the cash lender functions with the private creditors separately, then for every new loan request, the hard money lender must approach each personal creditor until s/he has raised enough money to finance the loan. The money is then placed into escrow until the final.
Alternatively, rather than approaching private money lender separately for every single new loan, the hard money lender may put private money from the private creditors into a pool–with specific criteria about how the money may be used. The hard money lender then uses predetermined provisions to choose which new loan requests fit those standards.
Various Kinds of properties–investment owner-occupied
While regular mortgage brokers can work with residential properties or commercial properties, hard money lenders significantly favor investment properties–also called”non-owner-occupied” properties (NOO for short). That is because”owner-occupied” (OO) properties have limitations on the number of points the hard money lender can accumulate (ex. A max of 5 points), and the expression must be at least 5 decades.
With NOO possessions, hard money lenders may charge higher fees and points and give loans for shorter terms, sometimes even 1 year or less. While that might appear risky and costly, the gain from one good”reverse” transaction can easily compensate for higher loan costs.
Knowledge of predatory lending legislation
Owner-occupied (OO) property properties are subject to what are called predatory lending legislation –a set of laws designed to protect customers, particularly the under-educated, minorities and the poor–from unscrupulous and unfair lending practices.
Hard money lenders must be completely knowledgeable of both national and state predatory lending legislation. And private creditors will only work with hard money lenders, because a normal mortgage broker usually isn’t familiar with predatory lending legislation and might make a mistake that gets his permit suspended–and might even endanger the private lender’s loan.
Now that we have discussed some of the differences between hard money lenders and traditional mortgage brokers, you can see a few reason for using hard money loans for investment properties which you mean to reverse or rehabilitation and resell. Here is another reason: by managing a hard money lender that has immediate access to private creditors (instead of several layers of agents ), you might be saving tens of thousands of dollars in points and additional fees.
What’s more, having a hard money lender can assist you quickly get the loan you require, with the duration you want, and without a risk to your credit. And in case you’re able to develop the perfect sort of relationship with the ideal hard money lender and personal lenders, you can also be a part of this”inner circle” of property investors who seem to discover about all of the best deals first–and are building real wealth.