The Nature of Hard Money Lenders
There is a great need to have hard money lenders active in the real estate industry. They do not work the same as regular mortgage brokers.
Mortgage brokers work in conjunction with institutions like banks and mortgage companies to arrange for mortgages and end up getting paid though points and some of the loan fees. The banks acquire new borrowers and some of the fees. In this case, the person seeking the loan ends up paying a lot of fees for heir benefit when their request is being processed. The more the mortgage brokers are intervein in an application, the more the borrower will end up paying.
Hard money lenders, alternatively, work directly with private lenders. They use individual lenders or a pool of them. When they opt for individual approaches, they have to go to each until they raise the required loan amount. The money is kept in escrow until the terms have been agreed on for the loan.
The other option of using a pool is where the private money lender puts the funds in a pool and issues specific guidelines as to how it can be accessed. The loan servicing company that shall collect loan payments deposits it back into the pool, where the private lenders shall receive a percentage of the payments.
Regular mortgage brokers prefer residential and commercial properties. Hard money lenders choose to work with investment properties, or non-owner-occupied properties. This is because owner-occupied properties, such as the residential and commercial properties, have limits as to how many points they can collect.
Owner-occupied properties fall under the watch of predatory lending laws, which were enacted to protect consumers, especially those who happen to be under-educated, minorities or poor, from suffering unfair lending practices.
Hard money lenders need to be aware of all federal and state predatory lending laws. Private money lenders usually opt to work with the hard money lenders since regular mortgage brokers may not know much about predatory lending laws. They could make errors that col lead to their licenses being suspended, and risking the amounts the private lender has put forth for the loan.
When looking to flip, rehab or resell a property, you are better off dealing with a hard money lender. This also grants you direct access to private lenders, instead of several layers of brokers. You will end u incurring much fewer costs.
It is also a faster way of accessing the loan you need, with more favorable periods, and no risk placed on your credit. When you deal favorably with the best positioned hard money lenders and private lenders, it shall be easy for them to see you as one of their own. This shall be your way into the inner circle, where there are more opportunities for you to succeed.