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Hard Money
Lending On The
Rise
Lending On The
Rise
In the current mortgage market, homebuyers
are finding it difficult to get financing. Banks
have tightened their lending quidelines and
the overall credit situation is getting worse.
Borrowers need to have a credit score of 730
or better to get a good deal on a mortgage.
As a result of all the chaos, borrowers are
turning to private hard money lenders.
A hard money lender is an individual like you
or me. This individual is willing to take a risk
and lend his or her money. This money could
come from a pension, a stock portfolio, bonds
or cash in the bank. So a hard money lender
has to be rewarded not only for taking the risk
but also for removing money from financial
vehicles that are returning generous profits.
There are two areas of concern for borrowers
when considering a loan from a hard money
lender. First, the loan to value has to be 70%
or lower. In the event of foreclosure the lender
will have a cushion to work with and can still
recover all or some of his money.
The second area is the interest rate. Hard
money lenders are more expensive than your
traditional bank. The mortgage rate is usually
10% or higher and there are points of another
2% to 5%.
The major benefit of using a hard money
lender is the short closing time. A deal can be
closed in 24 hours if there is a real
emergency.
A borrower should use hard money as a short
term strategy to save a property from
foreclosure or to buy a property. The term
usually run from 6 months to 2 years. During
this time frame the borrower should arrange
his financial affairs so that he can refinance
with a traditional lender or sell the property. If
the house is sold by the homeowner, the
proceeds are generally greater than having
the house sold at auction.
are finding it difficult to get financing. Banks
have tightened their lending quidelines and
the overall credit situation is getting worse.
Borrowers need to have a credit score of 730
or better to get a good deal on a mortgage.
As a result of all the chaos, borrowers are
turning to private hard money lenders.
A hard money lender is an individual like you
or me. This individual is willing to take a risk
and lend his or her money. This money could
come from a pension, a stock portfolio, bonds
or cash in the bank. So a hard money lender
has to be rewarded not only for taking the risk
but also for removing money from financial
vehicles that are returning generous profits.
There are two areas of concern for borrowers
when considering a loan from a hard money
lender. First, the loan to value has to be 70%
or lower. In the event of foreclosure the lender
will have a cushion to work with and can still
recover all or some of his money.
The second area is the interest rate. Hard
money lenders are more expensive than your
traditional bank. The mortgage rate is usually
10% or higher and there are points of another
2% to 5%.
The major benefit of using a hard money
lender is the short closing time. A deal can be
closed in 24 hours if there is a real
emergency.
A borrower should use hard money as a short
term strategy to save a property from
foreclosure or to buy a property. The term
usually run from 6 months to 2 years. During
this time frame the borrower should arrange
his financial affairs so that he can refinance
with a traditional lender or sell the property. If
the house is sold by the homeowner, the
proceeds are generally greater than having
the house sold at auction.
Are Hard Money
Loans Legal?
Loans Legal?
When some people think of hard money
lending they think of 'loan sharks', 'dirty
money' and other areas of illegal activity.
This is certainly not the case.
Hard money lending is legal. There is no
specific government agency or department
that oversees hard money lending.
However, as long as the hard money lender
conforms to the usury laws for the specific
state then all is good. The usury law spells
out the maximum interest rate a lender can
charge a consumer for a loan.
Negative Amortization.
There are some bad apples in the hard
money lending sector. They will go after the
property from the beginning. In these cases
they will provide a mortgage with negative
amortization. Negative amortization is
banned on hard money loans and
mortgage loans. Negative amortization
means the payments made do not keep up
with the interest being charged. As a result,
a borrower is going further into debt
despite making payments. Negative
amortization loans lose value independent
of market conditions.
Upfront Payments.
It is a common practice for a hard money
lender to ask for a fee when the borrower
signs the mortgage commitment. This is
usually $500 to $1,000. The balance of the
fee will be paid on closing. Some states
limit the upfront portion of the fee to two
mortgage payments. If the lender asks for
more you should contact your state
regulators.
Loans in Disregard of Ability to Repay.
A hard money lender has to operate within
the guidelines of predatory lending. A loan
with no credit check or income verification
is considered predatory. The lender must
be reasonably certain that the borrower has
the ability to repay the loan. If a borrower
obtains a 'No Credit Check' mortgage, he
may be able to get the loan rescinded.
State Banking Laws.
Depending on the number of loans a lender
funds, there might be a requirement for the
lender to get a banking license.
lending they think of 'loan sharks', 'dirty
money' and other areas of illegal activity.
This is certainly not the case.
Hard money lending is legal. There is no
specific government agency or department
that oversees hard money lending.
However, as long as the hard money lender
conforms to the usury laws for the specific
state then all is good. The usury law spells
out the maximum interest rate a lender can
charge a consumer for a loan.
Negative Amortization.
There are some bad apples in the hard
money lending sector. They will go after the
property from the beginning. In these cases
they will provide a mortgage with negative
amortization. Negative amortization is
banned on hard money loans and
mortgage loans. Negative amortization
means the payments made do not keep up
with the interest being charged. As a result,
a borrower is going further into debt
despite making payments. Negative
amortization loans lose value independent
of market conditions.
Upfront Payments.
It is a common practice for a hard money
lender to ask for a fee when the borrower
signs the mortgage commitment. This is
usually $500 to $1,000. The balance of the
fee will be paid on closing. Some states
limit the upfront portion of the fee to two
mortgage payments. If the lender asks for
more you should contact your state
regulators.
Loans in Disregard of Ability to Repay.
A hard money lender has to operate within
the guidelines of predatory lending. A loan
with no credit check or income verification
is considered predatory. The lender must
be reasonably certain that the borrower has
the ability to repay the loan. If a borrower
obtains a 'No Credit Check' mortgage, he
may be able to get the loan rescinded.
State Banking Laws.
Depending on the number of loans a lender
funds, there might be a requirement for the
lender to get a banking license.
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