I know someone that needs a hard money mortgage in New Jersey. I was thinking about funding the loan myself.?

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Are there any rules on what the maximum rate I can charge is, and is there anything I need to apply for to become a lender in New Jersey?

5 Comments
  1. Reply
    iceblendedmochajavo
    February 12, 2011 at 6:53 am

    you are not licensed to loan and earn interest on money. it is highly illegal to charge interest in most states.

    best not to loan money ever! watch judy judy, its filled with people that loaned money to friends and family, that never get paid back. you never think it will happen to you but it does.

  2. Reply
    hj_thorne
    February 12, 2011 at 7:44 am

    Never loan money to friends and family. Lenders sell loans to other companies and make money on the loans, they are insured if someone defaults on the loan, what kind of protection are you going to have if this person defaults? How will you enforce this loan?

    Unless your a licensed lender I wouldn’t even consider this.

  3. Reply
    Cheryl G
    February 12, 2011 at 8:05 am

    There is no rule against lending money to someone for them to use in any way they wish. Contact a good attorney to draw up the papers and use caution in checking on the background, credit history, work record, etc., of the prospective recipients. All jurisdictions are are different and you’ll need a real estate lawyer familiar with New Jersey law to answer all your questions.

  4. Reply
    kissmymiddlefinger
    February 12, 2011 at 9:04 am

    They probably need this loan from you because other sources for financing have dried up…why?
    because people that do risk analysis for a living have figured them highly risky…what credentials do you have figure that you have proved them wrong?
    RUN from this idea…
    for no other reason than when YOU need the money for something you want, you will be overextended

  5. Reply
    Serge M
    February 12, 2011 at 9:29 am

    As a private individual you don’t need anyone’s permission to lend money on a mortgage. You can charge whatever you want, but if you don’t charge a competitive rate, you will not find many takers. Competitive, of course, means taking into account the value of the property and the risk you assume on the borrower. This is not a business you go into blindly. There are two options.

    If you lend on first mortgages, you have the most security. Normally you would not want to lend more than about 80 percent of the appraised or sales value of the home, and then only if the buyer shows that he has the ability to make the payments. That means you check on the buyer’s income, net worth, debts he owes, credit history, etc. You need to make sure the home is insured with you as beneficiary, and that the buyer can and does pay the property taxes. Lenders often establish an escrow account into which the buyer makes monthly payments to accumulate the tax and insurance amounts. Keep in mind that if the buyer defaults, you have to go through foreclosure procedures and then have to sell the house or rent it and maintain it.

    A second option is a second mortgage, which is subordinate to the first mortgage and therefore carries a higher interest rate. Some investors will not take a second mortgage for less than a 15 percent return. The checking process is about the same, except that the house is already mortgaged so you would lend only on the remaining equity and make sure there is still equity left beyond the total debt. If the buyer defaults on the second mortgage, you have to foreclose and take over payments on the first mortgage until the house is sold. The money from the sale first pays the first mortgage, then the second, and the balance, if any, goes to the owner. Sometimes the sale does not provide enough to pay all of the second mortgage.

    Good luck. Investigate before you invest.

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