Hard Money Loan — A borrower’s guide!

Hard money loans are loans backed by real estate property in the form of collateral. These loans are short termed usually take around 12 months as repayment period however, they can be extended upon evaluation of request. As any other form of loan, hard money loans are also meant to be repaid within the specified period along with monthly repayment plus an interest charge.

None of the shady lending techniques are involved with hard money loans these days. Although this type of lending is done by private lenders, there is a lot that has changed since the past and now, hard money loans have become a reliable short termed loan borrowing facility for people with great aspirations.

Hard money loans prove to be as saviors in uncertain times when all else fails and banks refuse to lend the loan. Hard money lenders will accept the loan request as long as the backup property has sufficient equity to repay the loan if the borrower fails to pay on his own.

Hard Money Loans As Ideal Borrowings

There is no pressure on the borrower to go for a hard money loan when he is credible to acquire a bank loan. Possible scenario for a bank loan to be an ideal borrowing is when one has no issues with the loan taking a month or two to be funded while they have a great credit history, healthy income, years of employment at the same place and a lot more. Bank loans are good mostly for residential payment purposes.

Whereas, a hard money loan will be anybody’s no.1 choice if they need an immediate loan, for an urgent payment or most likeably for a real estate investment when acting on the right time is significantly essential for an investor.

Most properties get many bids which make the property difficult to purchase however, with a hard money loan that can be funded super quickly like in a matter of 2 to 3 days or even on the same day the investor is likely to win the bid over other bidders offering conventional financing for the same property.

People with unstable or new employments are still free to acquire a loan form a hard money lenders in Dallas. A person’s income does not restrict them from borrowing as long as they have a property to be placed as a collateral. Basically this property value is also a determining factor of the loan that can be obtained. Work stability or income history is yet another limiting factor that acts as a prerequisite for loan approval from banks, making hard money loans a simpler choice.

How Are Interest Rates Charged On Hard Money Loans?

Interest rates charged on hard money loans tend to vary from lender to lender and state to state. Interest rates are determined by the competition in the market as well as depend greatly on the loan to value ratio. So the charge one might be getting on his borrowed loan can be either high or as low as 10 to 15 percent along with mortgage points that can be anywhere around 2 - 4%.

So if you are planning to get a quick loan with simple terms and conditions and short repayment period, then discuss your plan with the hard money lenders Dallas who offer all these than make no delay and live up your plans for a successful business today and tomorrow.

How can Hard Money Lenders in Dallas help you with your real estate investment?

Hard money loans are the best friend of real estate investors. These loans are the quickest way to secure a deal. However, hard money lending might be complicated and therefore you should know what you are receiving before making decisions. The more you know about hard money lenders Dallas, the better for you. Hard money loans are the biggest source of capital these days.

What are Hard Money Loans?

Hard money loans are loans that are issued to investors based on property or hard assets. Though hard money lenders consider some factors such as credit, income, and experience of the individual borrower, they are not a high priority while deciding the eligibility of borrowers and the loan amount. These loans are available with higher interest rates and they have a shorter-term period of say 12 months. Hard money lending is a quicker kind of funding and the loans are issued within days and weeks rather than months.

Need for Hard Money Loans

Real estate investors focus on fix and flip properties and rental properties and they turn to these loans as their means of financing at a time when they have failed to get conventional loans from banks. The investors, who are unable to meet the bank standards including income and high credit score, find hard money loans a great alternative kind of funding.

Finding hard money lenders

Many new investors want to know how they shall find lenders of hard money for financing their projects. There are a few simple ways you can get these loans including the following:

·         Traditional Lenders or Real Estate Agents- Ask the mortgage broker or the realtor whether they know any hard money lenders

·         MeetUp meetings- Hard Money lenders speak at real estate events. You can ask fellow members whether they know trustworthy lenders or not.

·         Google Hard Money Lenders- You can google and find them. However, be careful as there are many rogue individuals. Talk to people and ask for references to receive their opinion.

Using hard money loans

Hard money lenders issue loans related to all kinds of property, however, there are certain kinds of investments that are made for hard money. Construction loans, rehab projects, and land loans are financed through hard money.

It does not indicate that other investments cannot be financed by hard money. When the buyer of any property has to act quickly or has credit issues, he should seek hard money loans due to the convenience and speed offered by this loan.

Hard money lenders versus other lenders

The main difference you will find between hard money lenders and other lenders is that hard money financing does not give importance to credit history or your income. Rather, hard money lenders Dallas see the value of the property as its deciding factor and puts emphasis on the after-repair value.

Some other differences are:

·         Hard money loans are for a short term. The borrowers cannot have a repayment period of 15-30 years. These loans have 6-18 months repayment period.

·         A hard money lender does not invest in owner-occupied residences as these properties have many rules and regulations.

·         Hard money lenders give their own money or they raise it from investors. This loan amount is based on property specialization and the risk they are comfortable with.

·         Hard money lenders have flexible negotiating terms. They have specific interest rates, upfront points, and defined durations.

Hard money loans for real estate are common nowadays in housing sectors. These loans give investors an edge over traditional financing. The borrowers can get capital faster and thus if you want to fund any deal, it is difficult to ignore hard money loans. 

Qualifying for hard money loans is always an easier option

Hard money loans are asset-based loans. The biggest factor that affects approval for traditional loans is income and credit history. Hard money lenders use the property as collateral and “hard” asset. When borrowers want loans rapidly or when traditional lenders shall not approve loans, hard money loans Houston are the only option.

Reasons for using hard money

Hard money loans are for those borrowers who cannot receive traditional funding.

•               Speed

As money lenders are focused mostly on collateral and less concerned with the financial position, these loans are closed quickly compared to traditional loans. These hard money lenders will not take a lot of time to process the loan application such as reviewing bank statements, verifying income, and others. The loan process moves quickly and they close the deals that traditional lenders cannot do.

•               Flexibility

Hard money loans are more flexible compared to traditional lenders. Here, a standardized underwriting process is not used rather each deal is evaluated separately. According to the situation, the repayment schedules are tweaked.

•               Approval

One important factor for hard money loans is collateral. The lender shall lend as much as the worth of the property. If there are negative items in the credit report and you have a foreclosure then some lenders do not look at your credit.

Requirements for hard money loans

For real estate, hard money loans have very fewer requirements than traditional bank loans. These are asset-based loans, which mean that lenders are mainly concerned with the property’s value and the equity of borrower in the property. If the borrower’s equity is larger, the loan shall be safer for the lenders.

Down payment

The main qualification to obtain hard money loans is having the essential equity or down payment in a property. For residential properties, the minimum amount ranges between 25-30% and for commercial properties, the range is between 30-40%.

Hard money loans with a higher down payment have a great chance of getting approved than a minimum down payment. When the borrower invests a larger amount, the risk is lower for the lender.

•               Cash Reserves

Another requirement is having cash reserves for making monthly loan payments and holding costs. The holding costs include taxes, insurance, HOA payments, etc. If the borrower can show a higher amount of cash reserves then there is a greater chance of getting approval for hard money loans.

Borrowers without adequate cash reserves might have a difficult time obtaining hard money loans. In many cases, lenders can enhance the loan amount and use the borrower’s funds for covering taxes, loan payments, insurance, and holding costs. This way lenders shall be assured that all necessary payments shall be met.

These lenders want to work with very strong borrowers. If there are higher chances of borrowers to default on a loan payment, the lenders are exposed to higher risk.

 Exit Strategy

Hard money loan lenders want to know about the experience of borrowers in real estate. Borrowers who have many years of experience shall have an easy time to get loan compared to borrowers are trying out for the very first time.

Borrowers who have little experience, hard money lenders will want to gather the detail of the project in details. The assumptions that are made by borrowers should be reasonable such as the exit strategy.

Conclusion

Hard Money loans Houston meet a specific niche, however, when your business is the real estate development, has to act quickly, bad credit, they are a potentially powerful and fast tool. Ensure you know everything in detail before you put your signature and have a planned exit strategy. However, if you find it too risky, you might try out other options.

Boost your business with commercial loans

 Commercial loans have been specifically designed to enable investors in buying properties without facing any problems. These loans serve as a great aide to those who need funding and are available on easy terms and conditions that make very easy for the borrower to return them over a period of time. For anyone looking forward to buying a property to boost business prospects, commercial loans play a key role as self-financing is often very tough unless you have loads of money.

Commercial loans have been especially carved out for the business of buying commercial property and you will find a number of lenders who will make the process of buying property easy. You can look forward to boosting your business, expanding the operations or the premises or buying inventory with commercial loans that enable you to enjoy greater returns on investment in the long run.

The most important thing to know when applying for commercial loan is having all the documentation in proper order. You must provide all documents of business that you have to present to the lender as the lender would want to know all about what you are doing, what you intend to do with the commercial loan and how you plan to return this loan. You will have to convince the lender regarding your business income as this will help to secure a loan for buying, renovating and repairing property that would boost your business.

You must understand that commercial loans are secured loans as huge amounts are at stake and the lender does not want to face any problem in case you are unable to pay back the loan. Thus, the lender will ask you to pledge a residential or a commercial property as collateral but the good thing about these loans is their low interest rate and if you have a good credit history and repaying capacity, securing commercial loans can prove to be the best thing to boost your business.

The amount of loan that is required depends on your personal circumstances. The lender will see how much amount you can afford for timely repayment of installments. In most of the cases, the lenders are willing to offer up to 80% of the value of the property that has been pledged as collateral but if you know the lender or can get someone to vouch for you, you might get even more. But again, the lender will closely examine the business plan and the property being pledged to determine the scope of return.

The good thing about commercial loans is that they are seldom a repayment burden as you have the facility of paying the loan back in the duration of your choice. Depending on the amount of money that you are borrowing, you have the time period of 5 to 30 years to repay the money which is indeed a great benefit to investors who seek to make fortunes by investing money in property business.

Commercial loans are also a great means to boost business because having a bad credit history does not deter the lender from giving you money.  The property that you are pledging as collateral will cut down any risks or worries that the lender might have regarding the deal but the interest rate might go up so it is advised that you seek the best lender who charges reasonable interest and gives you ample time to repay the loan.

Commercial loans Houston are a great choice as they give you a chance to step into the world of investment and make some money by making wise decisions. Not having enough capital should not prevent you from seeking your dreams as commercial loans make it easy for you to enjoy the returns that investing in business offers.

Seal your deal with Hard Money lenders in Dallas

Hard money is a short-term loan that is secured by real estate. This loan is funded by a fund of investors against traditional lenders including credit unions and banks. The term of the loan is generally around 12 months, however, the term may be extended for longer terms, say 2 to 5 years. This loan needs monthly payments of interest or principal along with interest payments.

The amount of money lend by hard money lenders Dallas is based primarily on the property’s value. This property might be owned by the borrower that he wants to use as collateral or it might be the property, which a borrower wants to acquire.

Hard money lenders are concerned with the value of a property instead of the borrower’s credit. Borrowers who cannot receive traditional financing because of short sale and recent foreclosure can obtain hard money when they have adequate equity in their property used as collateral. Hard money lenders can give loans when banks say “No.”

Who are hard money lenders?

Hard money lenders, Dallas, offer capital to individuals and businesses for purchasing real estate or for financing business development projects. This loan is mainly used in real estate transactions including commercial developments or rehabilitation projects. The loan lenders finance a part of these transactions and these loans have strict terms and conditions. You will find these loan lenders on the internet instead of traditional bank branches. Several private investors offer hard money loans.

Lending Practices

Hard money lending includes rapid loan turnaround times along with strict terms. Consumers can access a huge amount of money within 24 hours. The government agencies do not regulate the lending practices and lenders can make their own rules related to how much money they can lend, who they want to lend, and under what conditions.

Hard money lenders, Dallas, offer loans to people who are considered very risky by traditional banks. Applicants do not have financial statements or verifiable income. Even some applicants have no or little credit history. Moneylenders offer loans for investments that are considered highly risky. Hard money lenders offer real estate financing, which is severely distressed or under construction. The risks accepted by these lenders are high than traditional banks.

Lending Criteria

The criteria for hard money loans depend on the kind of investment. In several cases, these lenders do not give their approval based on credit history, however in asset evaluation, which is being acquired. People who have been refused traditional financing or people with little or no credit qualify for hard money loans till the time assets meet the eligibility criteria.

Many hard money lenders of commercial property consider the building’s value while making the loan approval decision. The hard loan lenders approve loans depending on the property’s value. Depending on the terms of the lenders, applicants may expect to get loans between 50-80% of the property’s value that they want to purchase.

Hard money lenders, Dallas, provide loan terms, which are considered higher than traditional lenders. The 

interest rates on loans range between 18-26%. The repayment schedules for loans are shorter that range between 6 months to 5 years.

Bottom Line

Financing through hard money loan is a way of borrowing money and property is used as collateral. Banks are generally concerned with financial history, credit scores, and the ability to repay the loan. The loan approval and lending application process may be tedious and lengthy. However, with hard money loans, this is not the case. Borrowers can get a loan quickly as hard money lenders, Dallas, are very less concerned with credit scores and your personal finances.

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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