What are known as “Hard Money Lenders” are what are also referred to as predatory lenders. This means they make loans based on the premise that the terms to the borrower have to be such that they will gladly foreclose if needed. Conventional lenders (banks) do everything they can do to avoid taking back a house in foreclosure so they are the true opposite of Moneylenders Act.
In the good old days just before 2000, hard money lenders virtually loaned on the After Repaired Value (ARV) of the property and also the percentage they loaned was 60% to 65%. Sometimes this percentage was as high as 75% in active (hot) markets. There wasn’t a great deal of risk as the real estate market was booming and cash was very easy to borrow from banks to finance end-buyers.
When 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 own inside the deal.
These rehabbing investors simply walked away and left the difficult money lenders holding the properties which were upside down in value and declining every 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 the lenders have drastically changed their lending standards. They no longer look at ARV but loan on the purchase price of the home which they have to approve. The investor-borrower should have an acceptable credit standing and put some money within the deal – usually 5% to 20% depending on the property’s purchase price as well as the lender’s feeling on that day.
However, when all is considered and done, Moneylender License Singapore carry on and make their profits on these loans from the 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 law allows.
Closing points are the main revenue stream on short-term loans and range between 2 to 10 points. A “point” is equal 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 amount of money borrowed, 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 because the mixture of the points and interest charged the investor can exceed state usury laws.
These lenders still take a look at every deal as though they must foreclose the borrowed funds out and consider the property back – these are and always is going to be predatory lenders. I would guess that 5% to 10% of all hard money loans are foreclosed out or taken back with a deed rather than foreclosure.
So aside from the stricter requirements of Moneylender Singapore Review, there were 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 capacity to repay the loan each month or to create 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 loan till the property is sold.