Hard Money Lenders Give you a Wonderful Loaning Alternative To Standard Banking
January 1st, 2012The distinctions involving standard banking institutions and lenders are certainly numerous. And of course that will probably have an impact on the way you set about picking between a traditional bank mortgage loan or perhaps a private mortgage mortgage loan. The service and challenges of qualifying for the mortgage loan will probably be different as well. Your own specific needs as a borrower will probably be a determining factor in who you go with.
One big difference of a hard money lender is that a customer’s credit history is almost never used but banks use it as one of the main factors in granting a mortgage loan. How well a borrower can make payments and the value of the collateral property are much more important to the private money lender than credit history.
Traditional banks usually operate in the “prime” lending market where borrowers have known and trusted credit and are not high risk. This is in contrast to hard money lenders who engage in sometimes much higher risk loans granted to precisely what are termed “sub-prime” borrowers.
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 situation will probably be the basis for a hard money lender making a special deal for each borrower. However, once any specific terms are agreed to by the borrower, a hard money lender will probably want to enforce them mercilessly in order to ensure repayment of the mortgage loan.
A default would not be good for a money lender as he has a great deal more to lose than a bank does. A bank has a large inventory of money to draw from but a hard lender is most likely putting up his own money and does not want to risk losing it.
And so charging a higher interest rate and having collateral to back up the mortgage loan are very important to moneylenders. Not only does the creditor not want to lose any money, he wants to make money no matter precisely what happens to the mortgage loan. Even if the borrower defaults on payments and the collateral is transferred to the lender, there will probably 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.
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.