So named “Hard Money Lenders” are what are also known as predatory lenders. This implies they make loans based on the premise that the terms to the borrower must be such that they will gladly foreclose if required. Conventional lenders (banks) do everything they can do to avoid taking back a house in foreclosure so they are the true complete opposite of Moneylender Rules.
In the classic days just before 2000, hard money lenders virtually 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 up to 75% in active (hot) markets. There wasn’t significant amounts of risk as the real estate market was booming and cash was easy to borrow from banks to finance end-buyers.
If 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 within 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 each day. Many hard money lenders lost everything they had along with their clients who loaned them the cash they re-loaned.
Since then lenders have drastically changed their lending standards. They will no longer look at ARV but loan on the purchase value of the house which they have to approve. The investor-borrower must have a satisfactory credit score and place some money within the deal – usually 5% to 20% depending on the property’s purchase price and the lender’s feeling on that day.
However, when all is considered and done, Moneylenders Act Singapore still make their profits on these loans through the same areas:
The interest charged on these loans which may be between 12% to 20% based on competitive market conditions between local hard money lenders and what state law will permit.
Closing points are the main revenue stream on short-term loans and range between 2 to 10 points. A “point” is equivalent to one percent of the amount borrowed; i.e. if $100,000 is borrowed with two points, the charge for the points will be $2,000. Again, the volume of points charged depends on the amount of money borrowed, the time it will likely be loaned out and the risk for 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 however are not since the mixture of the points and interest charged the investor can exceed state usury laws.
These lenders still examine every deal just as if they must foreclose the borrowed funds out and consider the property back – they may be and also will be predatory lenders. I might guess that 5% to 10% of all hard money loans are foreclosed out or taken back having a deed rather than foreclosure.
So except for the stricter requirements of Moneylender Singapore Review, 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 consider the investor’s capability to repay the financing monthly or to create the required interest only payments. If you go to borrow hard money, be prepared to might need some of your personal money and have lmupww in reserve so you can carry the borrowed funds until the property is sold.