Financial Web
> A Structured Prepayment System that Works
> Selling your Home via Auction
> Selling Your Home? Don't Neglect the Yard
> Understanding Assumptions
> Discussing Mortgage Delinquency
> Know Your Home's Worth
> FSBO Selling Tips
> Prep Your Home for Sale
> Balloon Mortgages
> Interest-Only Mortgages
> Mortgage Forgiveness Debt Relief Act of 2007
> Pre-Qualifying and Pre-Approval
> Tips to Increase your Home's Value
> Advertise your Home Thoroughly
> Tips to get the Best Mortgage Rate
> To FSBO, or Not to FSBO?
> Negotiating your Home's Selling Price
> Mortgage Payment Problems?
> Help for Delinquent Borrowers
> Selling the Property Yourself
> Hiring a Realtor to Sell your Home
> Shopping for a New Home? Create a Wish List!
> Home Sellers and Buyers: Tips for Both
> Money-Saving Kitchen Remodeling to Upgrade your Home
> Is Manufactured Housing for You?
> Upgrade your Home with Landscaping
> Buy or Build?
> Staging can make the Difference
> Home Warranties
> Take Advantage of Online Marketing to Sell your Home
> Short-Term Mortgages
> Negotiating your current Mortgage
> Adjustable Rate Mortgages (ARMs)
> All about Prepayment
> An Examination of Discount Points
> A few Home-Buying Fast Facts
> A Mortgage Primer
> Buydowns and Rate Locks
> Buying a Home as a Long-Term Investment
> Buying a Home? Don't Forget the Insurance
> Blended Rates
> Choosing the Right Lender
> Conventional Loan Disclosures
> Conventional Loans: Pros and Cons
> Closing Expenses
> Common ARM Indexes
> Don't be Victimized by Mortgage Scams
> Evaluating the Housing Bubble
> For First-Time Home Buyers: First Things First
> FHA and VA Loans
> Foreclosure
> Financing Your Home Renovation
> Forestalling the Foreclosure
> Fixed Rate or ARM?
> Glossary of Mortgage Loan Terms
> How to Save BIG Money on Your Mortgage
> Home Equity Lines of Credit (HELOCs)
> Home Equity Conversion Mortgage (HECM)
> HUD Foreclosure Homes
> Home-Buying Offer Strategies
> Interest-Only Loans: Good or Bad?
> More FHA Loan Programs
> Making Your Offer
> Mortgage Loan Underwriting
> Need a Mortgage but have Bad Credit?
> Negotiating with the Seller
> PMI - Do You Need It?
> Pros and Cons of FHA Loans
> Pros and Cons of Prepaying
> Paying off Your Mortgage Early
> Rent vs. Buy: How Should I Live?
> Reverse Mortgages
> Real Estate Financing Instruments
> Seller Financing
> So What Is a Mortgage, Exactly?
> Subprime and Hard Money Lenders
> Surviving the Closing
> Some HELOC Fast Facts
> Should You Buy with Cash or with a Mortgage?
> Some Mortgage Myths
> Special Mortgage Loan Programs
> Special Mortgage Loan Programs - Part 2: The Rural Development Guaranteed Housing Loan
> Some Helpful Tips when Applying for a Mortgage
> The FHA 203(k) Rehab Loan
> Ten Home-Buying Tips
> To Refinance or Not to Refinance?
> The Loan Application Process
> The Secondary Market
> Truth-in-Lending Act (TILA) - Real Estate Settlement Procedures Act (RESPA)
> The Energy-Efficient Mortgage (EEM)
> The Top 6 Types of Mortgages
> The Components of Your House Payment
> Turned Down for the Loan?
> Take Note of 'Bad Mortgage' Warning Indicators
> The Self-Employed Homebuyer
> There are Plenty of Ways to Buy
> The Perils of Interest-Only Mortgages
> Which Mortgage is Best for You?
> What's Good about Reverse Mortgages?
> When should you opt for an Adjustable-Rate Mortgage?
> Your Credit Health

Subprime and Hard Money Lenders

Although often used interchangeably, the terms subprime lender and hard money lender do not exactly refer to the same type of financier. Although they both specialize in making loans to people that traditional money lenders (banks, credit unions, mortgage companies, etc.) tend to shy away from, one can actually be viewed as a resource for more extreme circumstances than the other.

The subprime lender generally specializes in making mortgage loans to people with a poor or bad credit history, who have no down payment, or who have problems proving their income. Because these potential borrowers represent a higher risk to the lender, the interest rates that the lender offers will be higher than traditional market rates. The fees that a subprime lender charges to make the loan will usually also be higher.

The interest rates that are charged for a subprime mortgage can vary greatly. Depending upon the severity of the borrower’s circumstances, the rate can range from slightly above the normal market to several points above or more. This could represent hundreds of dollars more per month in additional interest payments. Add to that the less ideal terms (unreasonable prepayment penalties, for example) and higher fees involved with procuring the loan, and you can imagine an annual percentage rate (APR) far greater than a conventional mortgage.

The subprime market is a very lucrative one for lenders. With more and more consumers falling into problems with their credit, the pool of potential customers is massive and continues to grow. With higher profits to be gained, it’s no wonder that many traditional lenders have begun to offer subprime programs as well. And although most well-known lenders do business ethically, potential borrowers must still use all of the normal prudence and care when shopping for a mortgage lender and loan. Do your homework. Just because a lender says that you fall into the subprime category, comparison shop. Don’t just take the first thing that is given to you. Programs and fees can vary greatly, therefore talk to several different lenders to get the best loan that’s available for you.

Hard money lenders, usually private individuals or small companies, often go where even subprime lenders fear to tread. If a homeowner is already facing foreclosure proceedings, for example, even subprime lenders may balk at his or her circumstance. A hard money lender may be their last resort. These lenders tend to make loans based the homeowners’ equity in the property, not his or her credit history. Hard money lenders will make loans between forty percent to no more than seventy percent of the property’s appraised value, so that in the event of having to foreclose they will still be able to make a profit. High interest with strict terms, these loans are meant to be short term (often with balloon payments after a few years), to give the borrower time to get ready to qualify for more traditional financing.

Hard money lenders can be a great resource for real estate investors, however. They provide money quickly without the red tape of traditional lending institutions, a key point when capital is needed to buy a real estate, renovate it, and turn it around for a quick sale. Even with the much higher fees and rates of hard money, investors can still make substantial profits turning over properties in this manner.