What are known as “Hard Money Lenders” are what are also known as predatory lenders. This means they make loans based on the premise that the terms to the borrower must be such that they will gladly foreclose if needed. Conventional lenders (banks) do everything they can do to avoid taking back a home in foreclosure so they are the true complete opposite of Moneylender License Singapore.
In the good old days before 2000, hard money lenders basically loaned on the After Repaired Value (ARV) of the property as well as the percentage they loaned was 60% to 65%. In some cases this percentage was up to 75% in active (hot) markets. There wasn’t a great deal of risk as real estate market was booming and funds was easy to borrow from banks to finance end-buyers.
If the easy times slowed and after that stopped, the tough money lenders got caught in a vice of rapidly declining home values and investors who borrowed the cash but had no equity (money) of their very own in the deal.
These rehabbing investors simply walked away and left the difficult money lenders holding the properties that were upside down in value and declining every single day. Many hard money lenders lost everything they had as well as their clients who loaned them the cash they re-loaned.
Since that time lenders have drastically changed their lending standards. They no more examine ARV but loan on the purchase price of the property which they must approve. The investor-borrower should have a sufficient credit score and set some money within the deal – usually 5% to 20% depending on the property’s purchase price and the lender’s feeling that day.
However, when all is said and done, Moneylenders Act continue to make their profits on these loans from your same areas:
The interest charged on these loans which can be between 12% to 20% depending on competitive market conditions between local hard money lenders and what state regulations will allow.
Closing points are the main source of income on short-term loans and vary from 2 to 10 points. A “point” is equivalent to one percent in the amount borrowed; i.e. if $100,000 is borrowed with two points, the charge for your points is going to be $2,000. Again, the amount of points charged depends on the sum of money borrowed, enough time it will probably be loaned out as well as the risk for the lender (investor’s experience).
Hard money lenders also charge various fees for pretty much anything including property inspection, document preparation, legal review, as well as other items. These fees are pure profit and really should be counted as points but they are not since the mixture of the points and interest charged the investor can exceed state usury laws.
These lenders still take a look at every deal just as if they will need to foreclose the borrowed funds out and take the property back – these are and always will be predatory lenders. I would personally guess that 5% to 10% of all hard money loans are foreclosed out or taken back using a deed rather than foreclosure.
So aside from the stricter requirements of Moneylender Rules, there were no fundamental changes concerning how hard money lenders make their profits – points, interest, fees and taking properties back and reselling them.
These lenders also look at the investor’s capability to repay the financing monthly or create the required interest only payments. If you visit borrow hard money, anticipate to need some of your money and also have lmupww in reserve so that you can carry the borrowed funds till the property comes.