Jan 19 2012
What Are The Distinctions Concerning Hard Money Lenders And Standard Financial Institutions?
You will discover numerous distinctions concerning lenders and regular financial institutions. And these distinctions will impact whether or not you opt to go with a regular mortgage loan or a hard money mortgage. The service and difficulty of being approved for the mortgage loan will be different as well. A customer’s unique situation will be a factor in just what sort of service she or he decides on.
A customer’s credit score is rarely used by moneylenders. This is in contrast to banks who almost always use credit scores to determine whether or not they should grant a mortgage loan or not. A private money lender is much more concerned with the value of the collateral property involved and the borrower’s actual ability to pay the mortgage loan back.
Regular banks usually operate in the “prime” lending market where borrowers have known and trusted credit and are not high risk. Hard money lenders on the other hand sometimes give loans to those who are considered “sub-prime” borrowers because they have a relatively high risk associated with lending to them.
Because of the high risk associated with some borrowers that take out hard money loans, a significantly higher interest rate will generally be charged. The rate of interest on these loans is often ten percent to twenty percent or higher. More points than usual are sometimes charged to borrowers as well.
When it comes to flexibility money lenders can be much more so than are banks. A customer’s unique situation will be the basis for a hard money lender making a special deal for each debtor. However, once any particular terms are agreed to by the debtor, a hard money lender will want to enforce them mercilessly in order to ensure repayment of the mortgage loan.
This is because a moneylender has a lot more to lose than a bank might if a mortgage loan is defaulted on. Whereas a money lender is usually using his own money to fund a mortgage loan a bank is drawing from a large sum of money from deposits and faces less of a proportionate loss.
And so charging a higher interest rate and having collateral to back up the mortgage loan are very important to moneylenders. And even if a default occurs these measures ensure that the loan provider will still make money on the deal. Even if the debtor defaults on payments and the collateral is transferred to the lender, there will be a profit built into the original terms for this eventuality.
Needless to say, the hard money lender is providing a tremendously valuable service to all sorts of people in the marketplace. They may be reviled by many for so called “usury” but if that was really the case they would not be patronized by anyone.
It is important to realize however, that you really should understand just what you are getting into before you approach a private lender in any case. This will help you correctly understand just what is meant by any terms or agreement you enter into.
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