Hard Money Loans – The doorway to your investment needs

Hard money loans have become the go-to for house flippers who can’t borrow money from a bank. It could be that their credit isn’t great because the deal doesn’t pass a traditional lender’s strict guidelines.

The borrower’s cost of hard money, the interest rate, and the loan origination fee are higher for these reasons. The rates are higher but fixed on hard money loans, Houston to compensate the lender for the increased risk of the deal.

What is a Hard Money Loan?

A hard money loan is a loan backed by a ‘hard’ asset, a tangible property that produces profit to repay the loan quickly. In contrast, a traditional mortgage is secured by the value of the home and backed by the borrower’s ability to repay the loan in monthly instalments over 15 to 30 years.

How are hard money loans different?

There are several notable differences between hard money loans Huston and traditional loans:

·         Hard money loans have terms of 6 to 8 months, while traditional loans are typically amortized over 30 years.

·         Hard money loans usually carry an interest rate that is 4% to 10% higher than traditional loans.

·         Hard money loans are intended for short term investors, while traditional loans are for owner-occupied properties.

·         Hard money loans are backed only by the property as collateral, while traditional loans are backed by the property and borrower’s personal credit.

How Hard Money Loans are disbursed?

Funds are distributed in predetermined disbursements or ‘draws’ as needed by the contractor. The initial disbursement covers the property acquisition cost. Subsequent draws meet the needs of the renovation schedule. For example, there might a draw to purchase materials and several draws over several weeks to pay for the labor.

How Lenders approve Borrowers for Hard Money Loans?

While applying for a bank mortgage, underwriters make sure you can afford the monthly payments. A property appraiser also needs to make sure that the mortgage does not exceed the value of the property. Traditional lenders issue mortgages for owner-occupied homes, not investment properties. And it takes 30 to 45 days for the loan to be underwritten by a review committee.

With a hard money loan, the lender is focused on the deal. Do the financials make sense? Are you buying at a discount? Did you budget appropriately for renovations? Have you accurately determined the After Repair Value (ARV) to make sure you can sell the property for a profit and repay the loan on time? Typically, a hard money loan can get approved and funded in 7 to 14 days.

Advantages of Hard Money Loans

Hard money loan from Houston comes with several advantages.

·         Lenders and borrowers can close quickly. This is important in a competitive marketplace because you can get cash for hot deals without waiting for traditional financial approval.

·         Loans are backed solely by the property value. In many cases, you’re not personally liable for loan repayment.

·         Creditworthiness isn’t a consideration for approval.

·         Hard money loans require a lower loan to value ratio, so you don’t need the typical 20% down as you do with traditional investor financing.

·         It can be useful as a bridge loan to fund the investment while securing long-term financing.

If you are considering taking hard money loans, you must go for hard money loans Huston for the following:

·         Extensive experience with the type of loan you are seeking.

·         Reasonable interest rates and fees.

·         Enough funding for your loan.

Check those online reviews, ask investors for recommendations and read the testimonials before making your decision.