Hard Money Loans In Houston Tx
Capital Concepts provides hard money loans in Houston, TX. Whether you want to buy a new property, remodel your home for resale, or get financing for an investment, our team of experts can design a tailor-made option for you that will match your needs and help you achieve your long- and short-term goals in time.
Need financing? Get in touch with us today!
Hard Money Loans: What To Watch Out For
If the phrase hard money loan makes you think of quick and easy business deals that end in cold, hard cash, youre not too far off the mark. However, just because this type of loan offers fast financing doesnt mean its a good, safe option for everyone.
What are hard money loans and are they something to be wary of? Lets take a look.
What Investors Should Know About Title Commitments
What is a Title Commitment and Why Do Investors Need One? The title commitment for insurance is the insurers promise to issue title insurance after closing and should be carefully reviewed and understood. It is essentially a disclosure document that outlines any issues/requirements that need to be addressed prior to closing as well as any Read more
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Finding Hard Money Lenders For Real Estate Investing
Many new investors fret over how they will find hard money lenders to get moving on the financing of their project. But here are a couple of simple ways to approach this:
REIA or MeetUp Meetings: Often hard money lenders will speak at local real estate events. If not, ask fellow members to see if they know any trustworthy lenders.
Real Estate Agent or Traditional Lender: Ask that realtor, or mortgage broker, in your real estate network if they know a hard money lender you could do business with.
Google Hard Money Lender: Just be careful, there are some unscrupulous individuals out there. Be sure to ask for references and talk to fellow investors to get their opinion.
What Differentiates Hard Money Lenders From Bank Lenders
Hard money lenders differ from bank lenders in that they often fund more quickly, with fewer requirements. Hard money lenders are sometimes called asset-based lenders because they focus mostly on the collateral for the loan, whereas banks require both strong collateral and usually excellent credit and cash flow from the borrower.
Hard money lenders are willing to foreclose on and take back the underlying property if necessary, to satisfy the loan. Bank lenders typically look at the borrower to be able to pay back the underlying loan from the borrowers income, whereas hard money lenders are comfortable looking to a sale or refinance of the property as the method of repayment.
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What Happens If A Borrower Doesnt Pay The Hard Money Lenders Back
A borrower who defaults on a hard money loan ultimately is subject to having the lender foreclose on the property which has been put up for collateral. It should be noted that lenders typically follow a sequence of steps in order to try to avoid this final recourse. Such steps may include the lender attempting to reach the borrower to find out the current status and disposition of the property in order to see if things can be worked out cordially the penultimate step is to file a Notice of Default if necessary to trigger the legal foreclosure process.
What Are The Terms Of Hard Money In Terms Of Points And Interest Rates
Typically, hard money lenders impose a fee to the borrower in exchange for granting the loan. These fees are referred to as points. In most cases, the points on a hard money loan are equivalent to one percentage point of the loans entire value however, they can range anywhere between 2 percent and 4 percent of the whole amount loaned.
The rate of interest on a hard money loan might vary significantly depending on the lender and the nature of the transaction. Although most lenders will issue loans with a fixed interest rate, you may be able to negotiate a floating rate in some circumstances, based on my research and experience.
Hard money loans have traditionally carried interest rates ranging from 10 percent to 15 percent, depending on the lender and the projected risk of the transaction.
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Crowdfunded Hard Money Loans
This ones a bit more out there, but more accessible to more people!
Youve probably seen apps out there like Fundrise where you can buy a piece of a property instead of the whole thing. If you buy 1/100th of a rental unit, you get 1/100th of the rental profitssimple as that!
While its less common, there are companies out there that work on the lending side of things. You dont have to fund an entire deal, but if the borrower is paying 18% interest, you can get 18% interest on the money that youve lent.
While services like these arent everywhere, one way to do this manually is to join an investment group, where you have say 10 people, and each one puts in 1/10th of the cost of the deal. These types of opportunities are why I recommend that everyone interested in any type of real estate investing or lending should constantly be networking!
The Appeal Of Straightforward Approval
Getting approved for hard money loans is simpler by design. While you might struggle to get a mortgage if you have a poor credit score, this will not be an obstacle to a hard money lender. This is because the property itself is the collateral for the loan.
Youll still need to provide a contribution towards the cost of the property you are purchasing to gain approval in this context, equivalent to a deposit on a mortgage.
This needs to be between 60 to 80 percent of the prospective value of the home once it has been repaired, so it could cover a portion of the renovation costs in addition to the outright purchase price.
Even if your finances are in good order, a hard money loan could be preferable to other forms of lending, simply because it takes less time to get access to the cash. And in a fast-moving property market, even a day or two might make a big difference.
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Using Hard Money Loans In Real Estate Transactions Makes Sense In Some Situations
When taking out these types of loans, the goal is to secure assets to rehabilitate or develop them to eventually sell them for a profit. A hard money loan may be preferred over a conventional loan by an investor due to the simplicity of obtaining the funds.
Lending alternatives from financial institutions are frequently subject to lengthy approval processes that significantly burden the borrowers ability to repay the loan. Because hard money loans are asset-based and often backed by a mortgage, the authorization process for these loans is significantly shorter.
Lenders will analyze the underlying asset and can determine a lending decision within a few days of receiving it.
The following are some of the most important recommendations for using hard money loans for real estate investments that will help you manage your money and time in a more effective manner.
Hard Money Loans For Seattle Tacoma Spokane And All Of Washington
Intrust Funding is a leading private money lender for real estate investors in Washington state. Known for our hard money loans in Seattle, Tacoma, Spokane, and beyond, real estate investors trust our lending principles and processes for securing maximum value in real estate financing. As a nontraditional lender, with flexibility banks cannot have, we help investors build their real estate portfolios through quick financing and good deals. With Intrust Funding, you can secure fast real estate financing within 48 hours of loan approval. Weve developed and hold to our real estate loan underwriting principles and processes, because we know they work, and they ensure our clients are getting the highest returns on their investments. Your success means our success.
We understand the fast-paced environment of local real estate investing, which makes us the best private money lenders of the Puget Sound Region. Our fix and flip loans for residential property and hard money for commercial investments provide fast capital, allowing borrowers to cover closing costs quickly. With our short term real estate loans, borrowers present all-cash offers in as little as 48 hours to secure the best properties fast.
From Seattle to Spokane, our hard money loans are revolutionizing the real estate lending industry throughout Washington. Intrust Funding maintains an unwavering commitment to efficiency, transparency, and integrity throughout the loan process.
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What Is The Maximum Loan
Hard money lenders utilize two different measures to evaluate deals: loan-to-cost and loan-to-value metrics. While risk tolerance is highly dependent upon the lender, most prudent private money lenders will not exceed a loan-to-cost ratio of 75 percent, while the loan-to-value ratio is usually kept in the 60 to 65 percent range to ensure a sufficient safety margin.
Lenders may use the lesser of the LTC or LTV values to assess a loan, depending on when the property was purchased in the instance of more recent purchases, lenders will look at what the borrower paid for the property.
How Do Hard Money Lenders Compete
Hard money lenders will compete on fees, interest rates, their reputation, and quality of service, which includes the ability to fund a deal quickly and being more accessible to the borrower during the term of the loan and/or flexibility in case of unforeseen events and how the lender responds to special borrower requests that may arise.
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How Do I Start A Hard Money Fund
How To Become A Hard Money Lender Name your business and create your company structure. Set up an online presence for your business. Seek legal counseling on the creation of a limited liability company. Investigate potential investment opportunities. Make a business plan and draft the criteria of future loans.
What Do Private And Hard Money Lenders Have In Common
The one thing that these two potential lenders have in common is that neither of them are restricted in the way that a traditional lending institution is.
This benefits real estate investors in a few ways:
Its quicker as you dont need to jump through as many hoops to acquire private or hard money, you can sometimes have your loan approved in less than a week.
No credit check required With traditional funding, your credit rating has to meet certain criteria. However, thats not the case with hard and private lenders.
Allow for liquidity Youre able to leverage your own cash and stay more liquid when youre using other peoples money . This also helps you spread out the risk rather than taking it all upon yourself.
Its much more flexible Private lenders can be very creative with lending terms, whereas hard money loans dont have any prepayment penalty. These are just a couple of ways in which these two loans are more flexible than going down the traditional financing route.
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Should You Get A Hard Money Loan
Before you jump to an application, make sure getting one is the right decision.
- Is it for flipping a house? Short-term financing, like flipping a house or updating a rental property, would be a good time to look into hard money loans. If youre looking to buy a home to live in, consider a conventional, FHA, or another type of traditional mortgage.
- Have you flipped homes before? If this is your first time house-flipping, you might not qualify for a hard money loan. This type of financing is better for someone whos done this before, rather than someone whos going into it cold.
- Do you have any cash for additional financing? Whether its for a down payment or covering what a hard money loan wont, youll need to have funding from an alternative source for other things. Otherwise, you might have to resort to taking out an additional loan. If your property doesnt sell right away, you might be on the hook for more money than you had originally planned. Having money for a down payment, or whatever a hard money loan wont cover, might be the determining factor between getting approved and denied for a hard money loan.
This article was originally written on November 20, 2019 and updated on December 2, 2021.
What Are Some Disadvantages Of Hard Money Lenders
Disadvantages of seeking a hard money loan may include:
- Hard money loans are more expensive than bank loans, with higher interest rates and origination fees
- The quality of hard money lenders varies substantially from one lender to another some are unscrupulous and may be seeking to have the borrower default in order to foreclose on underlying real estate as a business strategy
- Some lenders may collect non-refundable deposits without having the capital required to make the loan they may either hope to find the capital once the loan is tied up or in rare cases, they may simply aim to collect the deposit with no intention of funding the loan.
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Hard Money Loan Rates: How Theyre Set
The approval process for any loan breaks down to this: the lender reviews all background information to determine if you can reasonably commit to making the necessary payments. In the case of a hard money loan, the lender is not digging into your financial background, so they are automatically taking a higher risk that you will default on the loan. Hard loan lenders take this risk because the home is listed as collateral, meaning they can resell the property themselves if the borrower cannot follow through on their loan repayment.
This higher risk is the primary reason for higher interest rates in hard money loans. In general, interest rates range from 2 10 percentage points higher than traditional mortgages. As of 2020, the average interest rate for hard money loans is 11.25%.
Nering With A Company
Alright, Im guessing that youre seeing that the best way to get into hard money lending or private lending is to work with a company. Any other way, in my opinion, is fraught with too much risk, and frankly still requires a fair amount of work from you in vetting and managing these deals!
Lets talk about a better way. A way that doesnt require you to be hands-on every step and yet youll still have experienced professionals managing the borrower so you dont have to worry.
Im talking about becoming a private lender with Do Hard Money.
While you must be an accredited investor, here is how the process works for our lenders:
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How I Started In Hard Money Lending
About 15 years ago, I was doing well as a real estate investor. My forte was certainly fix & flips, but I did a little bit of everything: duplexes, commercial, buy & hold, and tons of others.
During these years of super-active investing, I met a guy named Dan. He was a well-off guy who wanted to do something more with his money than the traditional Wall Street tactics of investing. So he financed a few deals for me, and we both made nice returns on a few deals.
Then one day he comes to me
He says, Ryan, Ive been testing you with these past few deals. I see that you work hard and you know how to get great returns on my money. So heres XYZ dollars, and I want you to figure out how to invest it.
If you can guess XYZ was a TON of money. Like I couldnt believe how much money he wanted me to help him invest!
And I knew exactly what I wanted to do with his money.
Hard money lending.
Eventually that turned into my company, Do Hard Money. On the front end, we provide loans to fix & flippers. On the back end are the private lenders who fund these deals.
Does A Hard Money Loan Require An Appraisal
Hard money loans for real estate usually dont require a full appraisal by a certified appraising company the way mortgages do, but that is an option in most cases if its the valuation you are most comfortable with. It can take longer to get approval when you wait for traditional appraisal services.
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When Should You Use A Hard Money Lenders In Canada
Canadian Professional real estate investors are great for beginner Canadian Professional real estate investors who may not have money or for those who have bad credit and cannot qualify. Canadian Professional real estate investors also use hard money when they need to purchase quickly. Typically a Canadian conventional mortgage can take 15-30 days or more.
Using Canadian Professional real estate investors is also a creative way to finance a property. Most like to call it Nothing Down. If you can borrow enough money to buy the property, fix it up and then sell it under market value for a profit, then youve just made money without any of your own money. Sure it will cost you money to borrow that money, but the rewards out way the expense.