Minimize the risk of default after obtaining a hard money loan in Houston

Over the years a multitude of labels have been used to describe hard money loans, but they typically indicate to one and the same thing with slight modification. You can also see hard money lenders being called by different names like Brokers, Loan Officers, Mortgage bankers or Agents but their basic role is all the same, i.e. getting the loan funded quickly. If you think that you need a hard money loan you need to work with a hard money lender who is specialized in this arena.

Why is the cost of hard money loans higher than bank loans?

One of the first questions that arise in the mind of the borrower is the reason for the high cost of hard money loans in comparison to bank loans or other loans from financial institutions. One of the primary reasons is that hard money loans are funded by private investors irrespective of the creditworthiness or financial stability of the borrower. The cost of hard money lending is generally determined based on two factors, one is the interest rate and the other is the upfront points (where one point is equal to one percent of the loan amount).

·         Interest Rate

Since hard money loans Houston represent a higher risk than other conventional lending institutions the rate of interest is also naturally higher. In return for the risk borne by the lender, he charges a higher rate of return. The higher the risk the higher will be the rate of interest for such loan amount. Hard money loan rates usually start at 10% per annum and soar higher depending on the risk involved in such lending.

·         Upfront Points

The upfront point usually remains 3 points higher than the prevailing bank offerings. Some hard money loans go even 10 points higher depending on the risk factor. These points are offered to enhance the yield of the hard money lender. The points will also vary depending on the loan amount. For a small loan amount, the upfront points will be typically higher whereas for higher loan amount it will be usually lower.

One of the simplest ways of calculating the cost of hard money loan is to consider the cost of not taking such loan. Many reputed lending companies provide an online hard money calculator to calculate the cost of borrowing from them.

How to minimize the risk of private money loans?

Since the cost of hard money lending is directly related to the risk involved in lending to a specific borrower, it should be the target of every borrower to try and minimize the risk of hard money loans. But how do you do it? Below are a few basic tips that can help any borrower in minimizing the risk from private borrowing.

·         Check your financial status

If you cannot afford to repay a loan, do not apply for one. Just because it is easy to obtain a loan from a private investor does not mean that you can pay it back. If you are financially stable it will also minimize the risk of getting a private loan.

·         Seek references from existing borrowers

If you can get details about a few hard money lenders, try to find out existing borrowers with whom the lender is currently servicing. When you are dealing with hard money loans in Houston, you need to be more careful than working with any bank or financial institution.

·         Check for the balloon payment

You might have the financial stability to obtain a private money loan but you may not be in a position to take up the balloon payment, i.e. a part payment that is required to be made to the lender at a pre-determined time. Failing to clear a balloon payment will cause the lender to foreclose on your collateral.

Make sure you conduct proper due diligence before applying for hard money loan as it will provide you with returns in the future.

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Know about the various concepts of hard money lending before applying for one

The concept of hard money lending has gained significant popularity over the years and has turned up to be a powerful means of financing for the majority of the real estate deals in today’s community. But still many people are yet to be introduced to the concept of hard money lending and the ways by which hard money lenders can play a major role in meeting both their short and long term monetary needs. From a layman’s viewpoint, a borrower from a hard money lender can avoid the hassles associated with conventional borrowing.

Down payment in case of hard money lending

The main criterion for getting a hard money loan sanctioned is the required equity or down payment in the property that will act as collateral to the loan amount. For residential properties, the minimum amount usually ranges from 25% to 30% of the cost of the property whereas for commercial properties it is generally 30% to 40% of the cost. In some situations, the borrower may use the option of cross-collateralizing wherein he can use multiple properties as collateral.

Since hard money loan is associated with a larger down-payment it has a higher chance of being sanctioned in comparison to a loan with a smaller down payment. This is because of the fact that the larger the amount of investment by the borrower in the project lower will be the intensity of the risk to the lender.

Considering the direct lending model

While many hard money lenders provide only for the property cost of the investment project and lend for only that part of the investment some go a step ahead by covering the rehab cost and the loan cost as well. Some hard money lenders Houston do not mandate a down payment in case a specific deal meets their lending criteria. Following the direct lending model, they fund up to seventy percent of the cost of property, rehab and loan cost. This means that the borrower literally requires no money for initial payment creating the possibility of massive profit potential. However, fitting everything below seventy percent of the After Repair Value can be difficult, but it is not impossible. In fact, these lenders scout to find deals that require no down payment.

What about the exit strategy?

An experienced investor in the real-estate market will have an easier time obtaining hard money loan than an investor who has recently started dealing in real estate. For a borrower who is trying to finance his first fix and flip project will have to share all the details of the property and the project with the hard money lenders in Houston. This is because the lender will be keen to know about the exit strategy to be undertaken by the borrower to repay the loan amount. Veteran investors usually have a preset exit strategy when it comes to dealing with real-estate investment.

Getting a hard money loan approved

Once the lender is satisfied that the potential borrower will be able to satisfy all his lending criteria, he will send a verbal communication to the borrower. The borrower will then need to fill out the application form for hard money loan wherein he is required to mention his assets and liabilities, income along with the loan amount applied for. Even if the borrower does not have a subject property at present he can obtain a pre-approved sanction letter for a specific purchase price. The letter obtained can be submitted later with the property offer to receive the loan amount from the hard money lender.

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Fund your real estate investment with Hard Money Lenders in San Antonio

The concept of private money lending has been popular since people started dealing with hard money. Over the years such a concept has evolved to become more sophisticated and organized in providing loans to those who would not qualify for conventional borrowing. The concept of hard money loan is based on capital rather than the credit history. Here, the property on which the loan amount is invested acts as a mortgage. In case the borrower is unable to repay the loan amount, the lenders recover the same from the sale proceeds of the property.

These asset-based loans are effective for real-estate investors who need to close their deals fast with the aim of generating quick profits. On the other hand, traditional loans consider the credit history of the borrower and take longer for approval, leaving crucial deals in the waiting list. Therefore, finding a reliable private lender is crucial to effectively invest in your desired real estate property.

How to find a hard money lender?

Finding a reputed hard money lender for your real estate investment need is more complicated than finding a general lending institution. However, the search procedure becomes easier if you know the tips to find the right one.

Browsing potential lenders

There are several Money Lending Guide Sites available online. You will get a lot of information about reputed hard money lenders. So, get to know the expected services you can get from them and the due diligence required to complete a deal.

Responsiveness and Market Reputation

When choosing a hard money lender make sure they provide a proper response to your concerns and inquiries. Visit the website of the lender to go through testimonials and customer reviews posted there. Select one who has extensive experience in the money lending sector so that you can get valuable advice and recommendations on budgets, timelines, etc.

Loan Flexibility

Go through the terms of the loan as disclosed in the documents to find out whether the terms and conditions are suitable for you. Some lenders allow modifying the parameters depending on your specific funding needs, exit strategy and desired loan terms. In any case, the flexibility that you will experience with hard money lenders San Antonio is greater than banks and other financial institutions.

Interest Rate

While the interest rate charged by a hard money lender will always be higher than that of banks the flexibility, quicker access to emergency funds and greater risk of funding makes them a preferred choice. However, know the interest rate you are being charged for the money you are borrowing.

Assess your Financial Condition

Even if you manage to find the right lender for your purpose, you will have to factor in higher interest rates for your profit calculations. To maximize the utilization of such loans, it is necessary to have a qualified team of subcontractors, development plan and comprehensive building and have proper anticipation of the investment period.

A Final Word of Advice

Although you can select your appropriate hard money lender across the country, it is better to start the search from your locality. Not only is it good to have face-to-face communication with your lender to understand the terms of the loan better but a local lender will have extensive knowledge of the area’s real estate making the funding process quicker. Compare among the several reputed hard money lenders in San Antonio and select the one that best suits your investment needs.

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Top benefits of hard money loans Houston

Hard money loan is a way to borrow money without using any traditional means of mortgage lenders. A hard money loan can come from individuals or investors who lend money based on the property that you will be using as the collateral. Hard money loans are the best option when the borrowers need the money quickly and either have no time to go through the standard protocols of traditional lenders or the chances of getting the loan are very slim.

There are numerous benefits of hard money loans and the main reason they are becoming so popular among the investors these days is quickness and efficiency with which these loans move forward. All you need to get a hard loan quickly and on the right time is to be prepared to show the lender that you have something good in collateral and you can repay them whiteout any delays. The lenders are not interested in your credit scores and income to repay the loan but the collateral and when you have it with you, securing a hard money loan become easy and you can enjoy the numerous benefits it offers.

Here are some top benefits of seeking hard money loans:

The biggest benefit of hard money loans is that their lenders have a different approach. They lend the money on collateral which secures the loan due to which they are not very concerned about the borrower’s ability to repay. If anything goes wrong and the borrower cannot repay, the hard money lenders plan to get their money back by taking the collateral and selling it. Thus, if you can’t come up with hard cash if things don’t work out, they are not worried as they can recover their money easily.

Hard money loans are easy to secure because they are not dependent on banks and traditional lending institutes and they can be secured from any other source with just collateral. As the lender is mostly focused on the collateral, hard money loans are processed very quickly and it takes lesser time to get the money for the required purpose. If you have a relationship with the lender, the process can move even quickly and gives you a chance to close deals when there is no other way to move forward.

Another great benefit of hard money loans is that they are flexible as the lenders don’t use a standardized underwriting process and they evaluate each applicant separately and decide if they are the best candidates for loan. Depending on your situation, you can tweak things such as repayment schedule and other things to make things work in your favor.

Hard money loans make it easy for you to step into the world of real estate and become an investor when no other option is available as banks and other credit companies have lots of requirements and you might not be able to satisfy them on all accounts.  By playing it safe and complying with the lender’s requirements, you can look forward to becoming an investor and reap benefits of hard loans.

The benefits of hard money loans Houston makes it easy for common man to understand why these loans are the best choice and make it easy for investors to make their fortune.

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