Hard Money Lenders and Regular Mortgage Brokers – How They’re Different

Hard money lenders are yet another type of home loan broker–or could they be? Well, certainly and no. Following are some ways in which hard money lenders are actually very different from regular mortgage brokers–and what that can mean for real estate investors. Best Money Lender Singapore

Private lenders vs. institutions

Regular home loan brokers work with a number of institutions such as big banks and mortgage companies to set up loans, and make their cash on points and certain loan fees. The lender itself tacks on more closing costs and fees, so when the final is over, the customer has paid any where from a few thousand to many thousand dollars in fees, points and other bills. And the more mortgage loan brokers are participating, the more points the debtor pays. 

Hard money lenders, on the other side, work directly with private lenders, either individually or as a pool. In the event that the hard money lender works with the private lenders individually, then for each and every new loan request, hard money lender must deal with each private lender until s/he has raised enough money to fund the loan. The cash is then put into escrow before the closing.

Alternatively, rather than getting close to private lenders individually for every single new loan, the hard money lender may place private money from the private lenders into a pool–with specific conditions about how precisely the amount of money can be used. The hard money lender then uses predetermined conditions to decide which new loan requests fit those criteria. The loan maintenance company that collects the loan payments pays them directly into the pool, and the pool pays off a percentage of those payments back to the private lenders.

Different types of properties–investment vs. owner-occupied

While regular mortgage agents could work with residential properties or commercial properties, hard money lenders vastly favor investment properties–also known as “non-owner-occupied” properties (NOO for short). That’s because “owner-occupied” (OO) properties have constraints how many points the hard money lender can acquire (ex. no greater than 5 points), and the definition of must be at least 5 years.

With NOO properties, hard money lenders can charge higher points and costs and offer lending options for shorter terms, sometimes even one year or less. While that may seem to be risky and expensive, the money from one good “flip” transaction may easily make up for higher loan expenses.

Knowledge of deceptive lending laws

Owner-occupied (OO) properties are subject to what are known as predatory lending laws–a place of laws designed to protect consumers, particularly the under-educated, minorities and the poor–from unscrupulous and unjust lending practices.

Hard money lenders must be totally knowledgeable of both federal government and state predatory financing laws. And private lenders only will work with hard money lenders, because a regular mortgage broker usually is not familiar with predatory lending laws and may make an oversight that gets his permit suspended–and may even put in danger the private lender’s loan.

Saving money with hard money lenders

Given that we’ve discussed some of the dissimilarities between hard money lenders and typical lenders, you can see some of the reasons for using hard money loans for investment properties that you would like to flip or treatment and resell. Below is another reason: by interacting with a hard money lender who has immediate access to private lenders (rather than several levels of brokers), you may well be keeping yourself thousands of us dollars in points and extra fees.