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

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

Legal Moneylender Jurong West
Private lenders vs. institutions

Regular lenders make use of a number of institutions such as big banks and mortgage companies to set up mortgages, and make their cash on points and certain loan fees. The financial institution itself tacks on more settlement costs and costs, so by the time the closing is over, the borrower has paid anywhere from a few thousand to several thousand dollars in fees, points along with other expenses. And also the more mortgage brokers 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 together with the private lenders individually, then for every new loan request, hard money lender must approach each private lender until s/he has raised enough money to fund the borrowed funds. The cash is then put in escrow until the closing.

Alternatively, rather than approaching private lenders individually for each new loan, hard money lender may place private money in the private lenders right into a pool--with specific criteria about how exactly the cash can be used. Hard money lender then uses predetermined terms to decide which new loan requests fit those criteria. The loan servicing company that collects the borrowed funds payments pays them directly into the pool, and the pool pays a portion of those payments back to the non-public lenders.

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

While regular mortgage brokers can work with homes or commercial properties, hard money lenders vastly prefer investment properties--also referred to as "non-owner-occupied" properties (NOO for brief). That's because "owner-occupied" (OO) properties have restrictions on how many points the hard money lender can collect (ex. no more than 5 points), and the term should be a minimum of Five years.

With NOO properties, hard money lenders may charge higher points and fees and provide loans for shorter terms, sometimes even twelve months or fewer. That can be a may seem risky and dear, the profit in one good "flip" transaction can certainly compensate for higher loan expenses.

Understanding of predatory lending laws

Owner-occupied (OO) real estate properties are subject to what are named as predatory lending laws--a group of laws designed to protect consumers, particularly the under-educated, minorities and also 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, just because a regular large financial company usually is unfamiliar with predatory lending laws and may get it wrong that will get his license suspended--and may even jeopardize the non-public lender's loan.

Saving money with hard money lenders

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

Furthermore, utilizing a hard money lender will help you quickly have the loan you need, with the term you want, with no risk for your personal credit. And when you can develop the appropriate relationship with the proper hard money lender and lenders, you can also participate the "inner circle" of real estate investors who seem to learn about all the best deals first--and are building real wealth.

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