Hard money lenders are just another type of mortgage broker—or are they? Well, yes and no. Following are a few ways in which hard money lenders are actually very different from regular mortgage brokers—and what that can mean for real estate investors.

Private lenders vs. institutions

Regular mortgage brokers work with a number of institutions such as big banks and mortgage companies to arrange mortgages, and make their money on points and certain loan fees. The bank itself tacks on more closing costs and fees, so by the time the closing is over, the borrower has paid anywhere from a few thousand to several thousand dollars in fees, points and other expenses. And the more mortgage brokers are involved, the more points the borrower pays.

Hard money lenders, on the other hand, work directly with private lenders, either individually or as a pool. If the hard money lender works with the private lenders individually, then for each new loan request, the hard money lender must approach each private lender until s/he has raised enough money to fund the loan. The money is then put into escrow until the closing.

Alternatively, instead of approaching private lenders individually for each new loan, the hard money lender may place private money from the private lenders into a pool—with specific criteria about how the money can be used. The hard money lender then uses predetermined terms to decide which new loan requests fit those criteria. The loan servicing company that collects the loan payments pays them directly into the pool, and the pool pays a percentage of those payments back to the private lenders.

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

Different types of properties—investment vs. owner-occupied

While regular mortgage brokers can work with residential properties or commercial properties, hard money lenders vastly prefer investment properties—also known as “non-owner-occupied” properties (NOO for short). That’s because “owner-occupied” (OO) properties have restrictions on how many points the hard money lender can collect (ex. a maximum of 5 points), and the term must be at least 5 years.

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Technorati Tags: hard money lender, hard money loans, mortgage broker

It isn’t uncommon to hear mortgage industry insiders refer to hard money lenders as a last resort. While this may be true to the extent that many borrowers who solicit loans from hard money lenders do so as a last resort, there are many cases in which a hard money lender may be sought before a traditional banking institution. Let’s take a look at some scenarios where a hard money lender might be a first stop instead of a last resort.

COMMERCIAL REAL ESTATE DEVELOPMENT

Let’s say a real estate developer has sunk $10 million into a development deal and originally planned to sell units in January and would then begin to recoup their investments dollars from the project. As is the case with many such endeavors, delays may push back the beginning sales date or the project may go over budget, leaving the developer with a cash negative situation. The developer now must take out a bridge loan in order to get through his cash poor period in order to “survive” until the project begins to realize a cash positive position. With a traditional loan, the bank would not push through the loan for the borrower for four to six weeks. The developer would default on his original loan or would not have cash on hand to finish up the project. The developer needs cash right now and oftentimes needs the cash for only a two to four month period. In this scenario, a hard money lender would be the perfect partner because they can provide a loan quickly and efficiently.

REHAB INVESTOR

Another example of a hard money scenario is a rehab investor who needs a loan to renovate run down homes that are non-owner occupied. Most banks would run from this loan because they would be unable to verify that the rehabber is going to be able to promptly sell the units for a profit — especially with no current tenants to provide rent to handle the mortgage. The hard money lender would, in all likelihood, be the only lender willing to take on such a project.

A BORROWER IN FORECLOSURE

One final scenario of hard money involves someone who finds themselves in foreclosure. Once a homeowner falls behind on their house payments, most lenders will not provide them with a loan or restructure their current loan. Occasionally, an individual who is facing foreclosure will obtain a hard money loan to avoid foreclosure proceedings and use the time to sell the property.

The question remains why would hard money lenders loan money if a traditional bank wouldn’t even consider such a gamble. The answer is two fold. The first is that hard money lenders charge higher rates than traditional lending institutions. The second is that hard money lenders require the borrower to have at least 25-30% equity in real estate as collateral. This insures that if the borrower defaults on their loan that the lender can still recoup their initial investment.

FLIPPING PROPERTIES

Another group who may use hard money lenders as a starting point as opposed to a last resort are real estate investors looking to “flip properties.” If an investor locates a property that they deem to be a great value, they might need quick and secure financing to take buy, renovate and sell the property quickly. Anyone looking to flip real estate does not want to hold on to the property for a long period and the short term loan from a hard money lender will accommodate this need. The loan may also be structured as interest only, keeping the expenses low. Once the property is sold by the individual who is flipping the property, the principal is paid back and the profit is kept or reinvested into the next project.

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Would it help you as a real estate investor to be able to
“Close For Cash in Days,” even if you’re tapped out
financially?

Hard money lenders are perhaps the best way to get 100%
financing with easy qualifying, money for fix- up, and fast
closings.

repairs.

Remember, hard money lenders are not concerned with your
personal credit to the level that traditional lenders are.
They’re concerned with the property. They know that their
loan is fairly secure if you default.

What’s bad about hard money loans?

The fees are higher than conventional financing.

Hard moneylenders in my area charge 15% interest, and 5% of
the value of the loan in closing costs (“five points”).

Thus, on a hundred thousand dollar loan, there would be
$5,000 in fees to the lender to close the loan, plus
attorney’s fees and other charges.

Secondly, the loans usually are only good for 12-24 months.
After that time, you have to refinance. If you haven’t sold
it by then, you have to get a new loan, pay more fees, etc.
These are not loans to buy rentals with.

Another disadvantage is the fact that most hard money
lenders don’t figure the payments on a 30-year basis. The
longer the payments stretch out, the cheaper the payment.
They figure these loans on 15 or even 10-year terms. Thus,
the monthly payment that you must pay is much higher than it
would be on a conventional 30 year amortization schedule.

Also, hard money lenders are often more difficult to find
than traditional funding sources. As a gift, I have
compiled a national list of hard money lenders at my site to
solve this problem for you.

Finally, most hard money lenders require a pre-payment
penalty that must be paid if you refinance or pay off the
mortgage before a given amount of time. Fortunately, this
time period is often fairly short. For example, the hard
money lender that I use has a two month pre-payment penalty
period. Even if I am not going to do much work on the
property, and have a contract on it quickly, I can just set
up the closing for after the pre-payment penalty expires.

In conclusion, hard money lenders present an attractive
option for investors to succeed without having to resort to
the late night TV creative hype that we’ve probably all been
exposed to. If you can qualify for traditional financing,
and your seller is comfortable with a longer closing window,
you may want to stay with conventional financing.

However, if down payment money is tight and your credit is
not perfect, or you need to close very quickly, hard money
lenders may be a viable solution since they will allow
almost anyone who can find a good deal to purchase a
property extremely quickly, with less red tape, get money
for rehab, and have virtually unlimited access to cash

So what can hard money lenders do for you? Hard money
lenders make relatively short term (12-24 month) loans to
real estate investors for the purposes of acquiring the
property and rehabbing the property.

These loans are often funded by pools of private investors
that have been grouped together into a pool of capital by a
lender.

The hard money lender is looking for maximum return, and is
willing to take more risk for this return in the form of
easier lending standards.

If you strike the right purchase deal, you can even borrow
100% of the purchase price plus some or all of your repair
money by using hard money lenders. Here’s how it works.

Hard money lenders typically loan 65% of the ARV or After
Repair Value of the property when it is repaired or ready
for resale.

That 65% loaned by the hard money lender is calculated based
on the value of the property AFTER REPAIRS, not as it
currently sits, and not based on the price is being paid for
the property.

For example, Say that the owner is willing to sell me his
house for $60,000. The hard money lender’s appraiser agreed
with my assessment that the home could be sold for $100,000
once it was fixed up. That appraisal would allow me to
borrow 65% of the $100,000, or $65,000. I’m only paying
$60,000 for the property, so guess where that extra $5,000
goes?

Unfortunately, not into my vacation fund!

The extra loan proceeds go into an escrow account held by
the hard money lender, and I can draw it out as I do

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How do you buy delinquent mortgages ?

I am not asking about how to buy real estate in foreclosure . I am asking as to whether there is a way to invest on buying the delinquent

mortgages . Thank you

Back with more news for you today. It’s amazing how much good information there is on this stuff out there if you know where to look. Three in particular that I found really valuable were…

Residential Mortgages (part 1) | my mortgage wish Read the rest of this entry

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Wells, U.S. Bancorp get big boost from mortgages – Yahoo! News

NEW YORK (Reuters) – Wells Fargo & Co (WFC.N) and U.S. Bancorp (USB.N) posted earnings that trounced Wall Street expectations, helped by outsized revenue from underwriting mortgages.

But it is not clear how long that bonanza will last.

U.S. mortgage applications have fallen 15 percent Read the rest of this entry

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