Whether you’re trying to improve your home, pay off your mortgage, or invest in additional real estate opportunities, there are many different loan options to choose from. It’s important to do your research on loans to make sure that you’re investing your money wisely.
Hard money loans are advertised as easy and fast loan options, but they can be risky. Because of different loan rules, hard money loans can be predatory and more expensive than traditional loan options.
Joshua Denbeaux is an attorney who fights against New Jersey hard money lenders who are taking advantage of consumers. Our goal is to protect homeowners’ rights and help them keep their homes.
If you think you may be a victim of a predatory loan, it’s a good idea to start working with an attorney as soon as possible. Contact Denbeaux Law today to learn more about how we may be able to help you fight back against predatory hard money lenders.
What Is a Hard Money Loan?
A hard money loan is a loan that’s secured using a property as collateral. Hard money loans don’t come from traditional lenders. They’re offered by private individuals or companies.
Hard money loans are also sometimes referred to as bridge loans. Bridge loans are frequently used to finance the purchase of a house while a homeowner is preparing to sell another home.
How Do Hard Money Loans Work?
Hard money lenders provide loans based on the equity or value of the property being used as collateral. Because the loan is based on the property loan, the value is calculated differently from that of traditional loans.
Hard money lenders often don’t consider credit score or debt-to-income ratio when calculating your loan. Unlike traditional lenders who want to avoid you defaulting on the loan and having to foreclose on a property, hard money lenders often want to put themselves in a position to take the property and get paid if you can’t keep up with your loan.
Many hard money lenders lend to high-risk borrowers because it is in their best interest. It’s not because they’re “good people” helping you out. They want you to default on your loan so they can take your home and make easy money off of your financial instability. Hard money lenders may even set up your loan to make defaulting inevitable so they can have a quick payday at your expense.
Why Do People Use Hard Money Loans?
Hard money loans are marketed as a faster and easier way to get access to money with less strict requirements than traditional loans.
People frequently turn to hard money loans if they need access to money quickly. Getting a loan through a traditional lender can take some time.
If individuals have been denied a mortgage application, they may feel like they’ll be unable to get a loan from a traditional lender and turn to hard money lenders.
Hard money loans can seem appealing because they have less strict requirements than traditional loans. Because hard money loans come from private individuals or companies and not lenders, they aren’t subject to the same regulations that apply to conventional lenders. Hard money lenders can create their own rules about how an individual’s credit score and debt-to-income ratio are considered when calculating their loan.
Risks of Hard Money Loans
The less strict loan requirements for hard money loans mean that a hard money lender takes on more risk. Because of the higher risk, hard money loans tend to be more expensive, with higher interest rates, larger down payments, and higher upfront fees and closing costs than traditional loans.
Hard money loans can be more challenging to repay because they have a shorter repayment period. While traditional mortgages are typically 15 or 30 years, hard money loans usually have repayment periods of one to five years. A shorter repayment period means that your monthly payments will be higher, which could make your loan more difficult to repay.
Hard money lenders don’t have to follow the rules that apply to financial institutions when it comes to loans. Because they can make their own lending rules, this could lead to predatory lending practices. Some hard money lenders have been known to falsely increase payoff and reinstatement quotes to prevent the borrower from getting out from under the loan.
What Is Predatory Lending?
New Jersey law defines predatory lending as lending practices that are disadvantageous to homeowners. Hard money lenders in New Jersey are subject to predatory lending regulations. Examples of predatory lending include:
- Making unaffordable loans based on homeowner assets rather than the ability to repay
- Inducing a borrower to refinance a loan repeatedly in order to charge high points and fees each time a loan is refinanced
- Engaging in fraud or deception in order to conceal the true nature of the loan obligation from an unsuspecting borrower
If you are dealing with a hard money lender and think you may have been a victim of predatory lending, an attorney can help you fight back against your lender. Contact an attorney as soon as possible to start the process of protecting yourself from a predatory lender.
Contact an Attorney Today
Using a hard money loan may seem easy and convenient, but it can be risky. Not all hard money lenders practice predatory lending, but it is important to be cautious when working with a hard money lender.
If you already have a loan from a hard money lender, it may be a good idea to consult an attorney, especially if you’re having issues with paying your loan. The sooner you start working with an attorney, the more options they may have to fight against predatory lending practices.
Denbeaux Law is committed to fighting for the rights of New Jersey homeowners. Contact us today to learn more about predatory hard money loans and how we may be able to help you.
