Hard Money Lenders and Regular Mortgage Brokers - How They're Different

 Hard money lenders are just a different type of mortgage broker--or are they? Well, yes and no. Following are a few ways where hard money lenders are now very different from regular mortgage brokers--and what that may mean for real estate investors.

Private lenders vs. institutions

Regular mortgage brokers make use of a amount of institutions such as big banks and mortgage companies to prepare mortgages, and make their money on points and certain loan fees. The bank itself tacks on more closing costs and fees, so by enough time the closing is finished, the borrower has paid anywhere from a couple of thousand to thousands of dollars in fees, points and other expenses. And the more mortgage brokers are involved, the more points the borrower pays.

Hard money lenders, on another hand, work directly with private lenders, either individually or as a pool. If the hard money lender works together 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 cash is then put into escrow before closing.

Alternatively, in place of approaching private lenders individually for each new loan, the hard money lender may place private money from the private lenders right into a pool--with specific criteria about how exactly the cash could 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 into the pool, and the pool pays a share of these payments back once again to the private lenders.

Different types of properties--investment vs. owner-occupied

While regular mortgage brokers can use 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. no more than 5 points), and the word must be at the least 5 years.

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

Knowledge of predatory lending laws

Owner-occupied (OO) real estate properties are subject from what are known as predatory lending laws--a pair of laws designed to guard consumers, especially the under-educated, minorities and the poor--from unscrupulous and unfair lending practices.    Hard Money Lenders in Florida

Hard money lenders must be fully knowledgeable of both federal and state predatory lending laws. And private lenders will simply use hard money lenders, must be regular mortgage broker usually is not familiar with predatory lending laws and will make an error that gets his license suspended--and may even jeopardize the private lender's loan.

Spending less with hard money lenders

Given that we've discussed some of the differences between hard money lenders and conventional mortgage brokers, you can see some of the reasons for using hard money loans for investment properties that you want to flip or rehab and resell. Here's another reason: by dealing with a hard money lender who has direct access to private lenders (rather than several layers of brokers), you may be saving yourself 1000s of dollars in points and extra fees.

Furthermore, using a hard money lender can allow you to quickly obtain the loan you'll need, with the word you need, and with no risk to your individual credit. And if you can develop the best type of relationship with the best hard money lender and private lenders, you too could be part of the "inner circle" of real estate investors who seem to learn about good luck deals first--and are building real wealth.