What Exactly Are The Similarities Between Hard Money Lenders And Standard Banks?
The distinctions concerning regular banks and money lenders are very numerous. And these distinctions definitely will have an impact on whether or not you opt to select a regular mortgage loan or a hard money mortgage loan. The qualifications of obtaining the mortgage loan and which type of service you want definitely will additionally be a consideration. A customer’s unique scenario definitely will be a consideration in what type of service he or she chooses.
Banks generally put a high weight on a potential borrower’s credit score as a determining factor for whether or not they grant a mortgage loan whereas a money lender might not even check the credit score. 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.
How Do Hard Money Loans Work?
Standard 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.
A considerably higher interest rate is charged because of the much higher risk involved with people who are looking for hard money loans. The rate of interest on these loans is often ten percent to twenty percent or higher. As well, several more points on the mortgage loan are sometimes charged for originating the mortgage loan.
When it comes to flexibility money lenders can be much more so than are banks. A customer’s unique scenario definitely will be the basis for a hard money lender making a special deal for each debtor. But they definitely will be rather stringent about enforcement of the agreed terms of the mortgage loan and might foreclose at the drop of a hat if they suspect there is a chance of non-payment or other violation of terms for any length of time.
Hard Money Loan Example
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.
That is why the collateral property is so important and a reason why such a higher interest rate is charged for these loans. Not only does the creditor not want to lose any money, he wants to make money no matter what happens to the mortgage loan. Even if the debtor defaults on payments and the collateral is transferred to the lender, there definitely 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. Even if they are demonized for charging high rates of interest or course they must be providing value or no one would use their services.
However, before you go to a moneylender, you should always try to be as knowledgeable as you possibly can. You don’t want to have any misunderstanding of nature of this type of lending agreement.