Question regarding investment loans

[Krishnan T.]

Hi BP experts! 

I heard that there are individuals investors who lend out money for purchasing. Hypothetically, If a traditional lender charged say around 4000 fees/closing cost etc and 5.5% rate along with a mandatory 25% down payment  ; Are there individuals who can lend to the same person at better terms beating out the traditional lender? : Say maybe 4.5 % rate and 15 % down instead? .

thanks!

[Chris Mason]

Originally posted by @Krishnan T.:

@Chris Ellis Thanks for your reply..On the face of it, it sounds logical and I am with you on more risk to Private lenders vs Banks. Correct me if I am wrong, but dont the banks simply turn around and sell the exact same loan again at a higher price as a performing loan to the same private investors ?. then the bank makes money twice for the same loan and is able to offload the loan off its books .

 That's true, and that's why institutional lenders can lend you money at 4.5% or 5.5%. Otherwise, why would anyone lend you money for less than they can get by parking it in an index fund on Wall Street? Which in turn is why private/hml charge more - they don't have the ability to sell that $500k mortgage for $505k or $510k, so the only profit is the points/rate they charge you. 

Us institutional guys can charge the going rate plus ~$1500 in fees because we know there's another chunk of change coming our way on the back end. The South Korean Teacher's Pension fund, or the entity managing your Roth IRA, or whatever, that buys the mortgage backed security wants the safe asset paying a steady ROI, but doesn't want to deal with consumers directly at the point of origination. So it works for them, it works for us, and it works for you -- that point or two on the back end translates into a point or two that you don't have to pay upfront. 

The HML guys need to charge 3 or 4 points because they need that profit and they need to put some away to pay for the legal fees associated with foreclosing on you later on. Irony of ironies that folks using hard money loans are paying for their own possible foreclosure, but this is also the reason that frequent repeat customers of a hard money lender typically pay less in points as the relationship progresses.