Just how do Hard Money Lenders Generate profits?3549533

What are named as "Hard Money Lenders" are precisely what are also called predatory lenders. Therefore they generate loans using the premise that the terms on the borrower have to be such that they will gladly foreclose if needed. Conventional lenders (banks) try everything they could do today to avoid taking back a house the foreclosure so that they are the true the complete opposite of Arizona hard money.

In the ancient days before 2000, hard money lenders virtually loaned on the After Repaired Value (ARV) of the property and the percentage they loaned was 60% to 65%. In some cases this percentage was up to 75% in active (hot) markets. There wasn't significant amounts of risk because the housing market was booming and funds was simple to borrow from banks to finance end-buyers. If the easy times slowed and after that stopped, hard money lenders got caught in a vice of in a free fall house values and investors who borrowed the amount of money but had no equity (money) of their very own inside the deal. These rehabbing investors simply walked away and left the tough money lenders holding the properties that were the wrong way up 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. Since then the lenders have decayed their lending standards. They will no longer look at ARV but loan around the price with the property that they can have to approve. The investor-borrower have to have a suitable credit score and hang some dough within the deal - usually 5% to 20% with respect to the property's final cost as well as the lender's feeling tomorrow. However, when all has been said and done, hard money lenders continue to make their profits on these loans in the same areas: A person's eye charged on these loans that may be between 12% to 20% based on competitive market conditions between local hard money lenders and what state guidelines will permit. Closing points will be the main income source on short-term loans and range between 2-10 points. A "point" is the same as 1 % with the amount you borrow; i.e. if $100,000 is borrowed with two points, the charge for your points is going to be $2,000. Again, the volume of points charged is dependent upon how much cash borrowed, enough time it'll be loaned out along with the risk on 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 but are not since the mix of what exactly and interest charged the investor can exceed state usury laws. They then still take a look at every deal just as if they will have to foreclose the borrowed funds out and go ahead and take property back - they're and constantly will be predatory lenders. I would estimate that 5% to 10% coming from all hard money loans are foreclosed out or reclaimed which has a deed rather than foreclosure. So aside from the stricter requirements of hard money lenders, there have been no fundamental changes about how hard money lenders make their profits - points, interest, fees and taking properties back and reselling them.