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Unformatted text preview: ly to have a shorter repayment term than are loans made by institutional lenders.
6-6 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 6: HARD MONEY LOAN & CONVENTIONAL LOANS
Loans made by hard money lenders are more likely to have a balloon payment than loans made by institutional lenders. FIXED RATE
Relatively few hard money loans have adjustable rates.
The reason being that the interest rates are quite high to begin with, and hard money lenders who have a few loans do not want to be bothered with the accounting required to handle adjustable rate loans. (The loan could be serviced by a firm set up to handle adjustable rate loans.) INVESTOR PROTECTION
As previously stated, the most important lending criteria for hard money lenders is the value of the property securing the loan. As a rule of thumb, the loan–to–value ratio should not exceed 70 percent.
With a 70% ratio, the lender should not suffer a loss if the borrower defaults on his or her loan payments. The 30% equity should be sufficient to cover the following: Interest Lost – Payments not made means lost interest. Foreclosure Costs – Besides the direct costs of foreclosure, there is the time factor to consider. The time value of money (interest) must be considered. Senior Liens – It the investor's junior lien is in default, chances are the senior liens are also in default. Marketing Costs – Marketing costs to recoup the loss involve a number of expenses. Commissions – Costs paid to a sales agent. Escrow and Closing Costs – These are normal costs involved in any sale transaction.
Dynasty School (www.dynastySchool.com) 6-7 REAL ESTATE FINANCE
Maintenance Costs – The property will probably have maintenance costs during the marketing period. In addition, owners in foreclosure often neglect regular maintenance and in some case are actually destructive, which could result in considerable expense. Holding Costs – Depending on the type of property, it could take six months for a sale after foreclosure. To not suffer any loss, the sale proceeds should be enough to cover...
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This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.
- Spring '10