Questions and Answers
Which of the following best describes a hard money loan?
Who qualifies as a hard money arranger for a loan?
Why do investors often use brokers for funding hard money loans?
What is the term for the difference between market value and liens against a property?
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Where do most loan funds for hard money loans originate?
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What is the maximum LTV a noninstitutional investor would generally want?
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What is something a mortgage loan broker would likely NOT do?
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Which amount does not qualify as a first trust deed under Article 7 provisions?
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What is the limit on loan costs for second trust deeds?
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What characterizes a hard money loan?
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Study Notes
Hard Money Loans
- Hard money loans are asset-based loans where the basis of the loan is the value of the property rather than creditworthiness.
- Example: A cash loan arranged by a loan broker is considered a hard money loan.
Hard Money Arrangers
- A hard money arranger is typically a broker who operates as an intermediary without being the borrower or lender.
- This role is crucial for facilitating arrangements between parties in hard money transactions.
Use of Brokers
- Investors often utilize brokers to secure funding for loans as brokers help avoid usury restrictions, ensuring compliance with state laws regarding interest rates.
- Brokers provide title protection and help borrowers navigate legal requirements, improving loan security.
Market Value vs Liens
- The difference between market value and existing liens on a property represents the equity held by the owner.
- Equity is essential for determining the potential returns for hard money lenders.
Funding Sources
- Most funds for hard money loans originate from personal and business savings rather than institutional lenders or federal programs.
- Noninstitutional investors typically prefer an LTV (Loan-To-Value) ratio that does not exceed 70%.
Mortgage Loan Brokers
- Mortgage brokers specialize in arranging hard money loans and loans that institutional lenders may decline.
- They do not generally service the loans they arrange, focusing instead on connecting borrowers with lenders.
Article 7 Provisions
- Article 7 provisions do not apply to first trust deeds valued above $30,000, impacting regulatory compliance.
Second Trust Deeds
- Restrictions on loan costs for second trust deeds exist if the loans are under $30,000, introducing limitations that protect borrowers.
Insurance Requirements
- Brokers may require borrowers to carry specific types of insurance, such as term life or disability insurance, to secure the loan.
- The requirement for such insurance is contingent on the terms negotiated in the loan arrangement.
Hard Money Loans
- Hard money loans are asset-based loans where the basis of the loan is the value of the property rather than creditworthiness.
- Example: A cash loan arranged by a loan broker is considered a hard money loan.
Hard Money Arrangers
- A hard money arranger is typically a broker who operates as an intermediary without being the borrower or lender.
- This role is crucial for facilitating arrangements between parties in hard money transactions.
Use of Brokers
- Investors often utilize brokers to secure funding for loans as brokers help avoid usury restrictions, ensuring compliance with state laws regarding interest rates.
- Brokers provide title protection and help borrowers navigate legal requirements, improving loan security.
Market Value vs Liens
- The difference between market value and existing liens on a property represents the equity held by the owner.
- Equity is essential for determining the potential returns for hard money lenders.
Funding Sources
- Most funds for hard money loans originate from personal and business savings rather than institutional lenders or federal programs.
- Noninstitutional investors typically prefer an LTV (Loan-To-Value) ratio that does not exceed 70%.
Mortgage Loan Brokers
- Mortgage brokers specialize in arranging hard money loans and loans that institutional lenders may decline.
- They do not generally service the loans they arrange, focusing instead on connecting borrowers with lenders.
Article 7 Provisions
- Article 7 provisions do not apply to first trust deeds valued above $30,000, impacting regulatory compliance.
Second Trust Deeds
- Restrictions on loan costs for second trust deeds exist if the loans are under $30,000, introducing limitations that protect borrowers.
Insurance Requirements
- Brokers may require borrowers to carry specific types of insurance, such as term life or disability insurance, to secure the loan.
- The requirement for such insurance is contingent on the terms negotiated in the loan arrangement.
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Description
Test your knowledge on hard money lenders and arrangers with this quiz focused on Chapter 12. Explore the definitions and applications of hard money loans, along with the roles of those involved in these financial transactions. Perfect for students of real estate finance!
