So called “Hard Money Lenders” are what are also referred to as predatory lenders. What this means is they make loans based on the premise that the terms to the borrower need to be such that they will gladly foreclose if required. Conventional lenders (banks) do everything they can do to avoid taking back a home in foreclosure so they are the true opposite of Moneylenders Act.
Inside the traditional days just before 2000, hard money lenders basically loaned on the After Repaired Value (ARV) of a property as well as the percentage they loaned was 60% to 65%. In some instances this percentage was as high as 75% in active (hot) markets. There wasn’t significant amounts of risk as real estate market was booming and cash was simple to borrow from banks to finance end-buyers.
If the easy times slowed and then stopped, the tough money lenders got caught in a vice of rapidly declining home values and investors who borrowed the money but had no equity (money) of their very own in the deal.
These rehabbing investors simply walked away and left the hard money lenders holding the properties that were upside-down in value and declining every single day. Many hard money lenders lost everything that they had as well as their clients who loaned them the money they re-loaned.
Ever since then lenders have drastically changed their lending standards. They will no longer look at ARV but loan on the purchase price of the property which they must approve. The investor-borrower must have a sufficient credit score and put some money inside the deal – usually 5% to 20% depending on the property’s purchase price and the lender’s feeling that day.
However, when all has been said and done, Moneylender Act Singapore carry on and make their profits on these loans from your same areas:
The interest charged on these loans which can be anywhere from 12% to 20% depending on competitive market conditions between local hard money lenders and what state law allows.
Closing points would be the main income source on short-term loans and range between 2 to 10 points. A “point” is equal to one percent of the amount borrowed; i.e. if $100,000 is borrowed with two points, the charge for the points is going to be $2,000. Again, the amount of points charged depends on the amount of money borrowed, the time it will be loaned out and the risk to the lender (investor’s experience).
Hard money lenders also charge various fees for almost anything including property inspection, document preparation, legal review, and other items. These fees are pure profit and should be counted as points but are not since the mixture of the points and interest charged the investor can exceed state usury laws.
These lenders still look at every deal as if they must foreclose the financing out and consider the property back – these are and also will likely be predatory lenders. I might guess that 5% to 10% of all hard money loans are foreclosed out or taken back with a deed in lieu of foreclosure.
So aside from the stricter requirements of Moneylender Singapore Review, there has been no fundamental changes as to how hard money lenders make their profits – points, interest, fees and taking properties back and reselling them.
These lenders also glance at the investor’s capacity to repay the financing each month or to create the required interest only payments. If you go to borrow hard money, expect to might need some of your money and have lmupww in reserve to help you carry the borrowed funds up until the property is sold.