There is a great need to have hard money lenders active in the real estate industry. They are however different from the regular mortgage brokers.
Mortgage brokers get institutions like banks and mortgage companies to give clients mortgages, through which they shall earn points and some of the fees imposed on the loans. The banks acquire new borrowers and some of the fees. This results in a situation where the borrower pays a lot of fees and incurs more expenses while processing such funding. The more the mortgage brokers are intervein in an application, the more the borrower will end up paying.
There are no intermediaries between hard money lenders and their private lenders. They do this individually or as a pool. If the money lender approaches a private lender individually, whenever there is a loan request, they have to approach each private lender until they raise enough money to fund the loan. The money is then held in an escrow account until the buying is done.
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 see the need to work with non-owner-occupied properties instead. 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 are subject to predatory lending laws, which were made to protect consumers, especially those who are undereducated, minorities and the poor, from unfair lending practices.
Hard money lenders should be informed on all the 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 mistakes that could cost them a suspension of their licenses, and may put the private lender’s loan at risk.
If you wish to flip, rehab, or resell a property, you need to consider dealing with a hard money lender. This method also eliminates the many brokers standing between you and the private lender. You will end up saving yourself from so many costs.
It is also a more time-sensitive way of getting a loan, with better loan durations and virtually no risk imposed on your credit. If your transaction progress well and you are in good terms with the best placed hard money lenders and private lenders, they shall find it easy to trust you as an investor. This shall be a way of you getting first hand information on the best deals and how to use them.