So called “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 necessary. Conventional lenders (banks) do everything they can do to avoid taking back a property in foreclosure so they are the true opposite of Moneylender Rules.
Within the traditional days before 2000, hard money lenders pretty much loaned on the After Repaired Value (ARV) of any property and the percentage they loaned was 60% to 65%. In some cases 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.
When the easy times slowed and after that stopped, the hard money lenders got caught in a vice of rapidly declining home values and investors who borrowed the amount of money but had no equity (money) that belongs to them within the deal.
These rehabbing investors simply walked away and left the hard money lenders holding the properties which were upside-down in value and declining every day. Many hard money lenders lost everything they had along with their clients who loaned them the amount of money they re-loaned.
Since then lenders have drastically changed their lending standards. They will no longer take a look at ARV but loan on the purchase value of the property which they must approve. The investor-borrower will need to have a sufficient credit score and set some money within the deal – usually 5% to 20% depending on the property’s purchase price and also the lender’s feeling on that day.
However, when all has been said and done, Moneylenders Act Singapore still make their profits on these loans from the same areas:
The interest charged on these loans which is often from 12% to 20% depending on competitive market conditions between local hard money lenders and what state law will permit.
Closing points are definitely the main revenue stream on short-term loans and vary from 2 to 10 points. A “point” is the same as one percent in the amount borrowed; i.e. if $100,000 is borrowed with two points, the charge for that points will likely be $2,000. Again, the volume of points charged depends on the sum of money borrowed, enough time it will probably be loaned out as well as the risk to 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 should be counted as points however are not since the blend of the points and interest charged the investor can exceed state usury laws.
These lenders still examine every deal as if they must foreclose the financing out and consider the property back – they are and also will be predatory lenders. I would guess that 5% to 10% of all hard money loans are foreclosed out or taken back having a deed in lieu of foreclosure.
So with the exception of the stricter requirements of License Moneylender In Singapore, there have been no fundamental changes regarding 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 ability to repay the financing every month or make the required interest only payments. If you get to borrow hard money, anticipate to require some of your personal money and also have lmupww in reserve to help you carry the borrowed funds until the property comes.