So named “Hard Money Lenders” are what are also referred to as predatory lenders. This implies they make loans based on the premise that the terms to the borrower need to 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 complete opposite of Moneylenders Act.
Within the good old days before 2000, hard money lenders virtually loaned on the After Repaired Value (ARV) of a property and the percentage they loaned was 60% to 65%. Sometimes this percentage was as high as 75% in active (hot) markets. There wasn’t significant amounts of risk as the real estate market was booming and money was very easy to borrow from banks to finance end-buyers.
When the easy times slowed then stopped, the difficult 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) of their very own in the deal.
These rehabbing investors simply walked away and left the tough money lenders holding the properties that were upside-down in value and declining every single day. Many hard money lenders lost everything they had in addition to their clients who loaned them the money they re-loaned.
Since that time the lenders have drastically changed their lending standards. They no longer examine ARV but loan on the purchase price of the property which they need to approve. The investor-borrower should have a satisfactory credit score and set some funds in the deal – usually 5% to 20% depending on the property’s purchase price and also the lender’s feeling that day.
However, when all has been said and done, Moneylender Act Singapore continue to make their profits on these loans from your same areas:
The interest charged on these loans which is often from 12% to 20% according to competitive market conditions between local hard money lenders and what state regulations allows.
Closing points are the main income source on short-term loans and vary from 2 to 10 points. A “point” is the same as one percent of the amount borrowed; i.e. if $100,000 is borrowed with two points, the charge for that points is going to be $2,000. Again, the quantity of points charged depends on the amount of cash borrowed, enough time it will likely be loaned out and 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 are not as the combination of the points and interest charged the investor can exceed state usury laws.
These lenders still examine every deal just as if they will have to foreclose the loan out and consider the property back – they are and also will be predatory lenders. I would guess that 5% to 10% of hard money loans are foreclosed out or taken back using a deed in lieu of foreclosure.
So aside from the stricter requirements of License Moneylender In Singapore, there has been no fundamental changes concerning how hard money lenders make their profits – points, interest, fees and taking properties back and reselling them.
These lenders also consider the investor’s capability to repay the borrowed funds each month or make the required interest only payments. If you visit borrow hard money, anticipate to need some of your money and have lmupww in reserve so that you can carry the borrowed funds up until the property is sold.