How Do Hard Money Lenders Make Money?7263883

So called "Hard Money Lenders" are precisely what are also known as predatory lenders. What this means is they've created loans using the premise that this terms for the borrower should be such that they will gladly foreclose if required. Conventional lenders (banks) you must do everything they are able to caused by avoid taking back a property in foreclosure so they would be the true the complete Arizona hard money.

Within the classic days just before 2000, hard money lenders basically loaned for the After Repaired Value (ARV) of a property and also the percentage they loaned was 60% to 65%. Sometimes this percentage was of up to 75% in active (hot) markets. There wasn't a lot of risk since the housing market was booming and money was easy to borrow from banks to fund end-buyers. In the event the easy times slowed and then stopped, the difficult money lenders got caught in a vice of in a free fall home and investors who borrowed the money but didn't have any equity (money) of their own from the deal. These rehabbing investors simply walked away and left the difficult money lenders holding the properties which were the wrong way up in value and declining every day. Many hard money lenders lost everything that they and clients who loaned them the money they re-loaned. Since that time lenders have decayed their lending standards. They no longer look at ARV but loan for the purchase price in the property that they have to approve. The investor-borrower should have a sufficient credit standing and place some money within the deal - usually 5% to 20% depending on the property's cost and the lender's feeling that particular day. However, when all is claimed and done, hard money lenders continue to make their profits on these refinancing options in the same areas: A persons vision charged on these loans that may be between 12% to 20% according to competitive market conditions between local hard money lenders along with what state guiidelines will permit. Closing points would be the main income source on short-term loans and range from 2-10 points. A "point" is the same as 1 percent in 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 is dependent upon the money borrowed, enough time it will likely be loaned out and also the risk towards the lender (investor's experience). Hard money lenders also charge various fees for up to anything including property inspection, document preparation, legal review, as well as other items. These fees are pure profit and may be counted as points but aren't because the combination of the points and interest charged the investor can exceed state usury laws. They then still look at every deal as if they've got to foreclose the money out and make property back - they are and constantly will probably be predatory lenders. I'd personally reckon that 5% to 10% of hard money loans are foreclosed out or reclaimed which has a deed instead of foreclosure. So with the exception of the stricter requirements of hard money lenders, there are no fundamental changes regarding how hard money lenders make their profits - points, interest, fees and taking properties back and reselling them.