Tips for Choosing the Right Hard Money Lender

Piggy Bank

Hard money loans are preferred among real estate investors because of their quick turnaround time. However, not all hard money investment lenders in Texas are the same. To avoid getting talked into a bad deal, check out these tips for choosing the best hard money lender.

Choose a Firm that Specializes in Hard Money Lending

This might seem like a no-brainer, but many people confuse private investment lenders with hard money lenders. Hard money loans require the expertise of a hard money specialist to make sure all servicing, origination, and other requirements are completed correctly. While on the surface these loans look simple, they’re actually rather complex and must be structured well to make sure the lending process is facilitated well.

Select a Local Investment Property Lender

Hard money lenders are concerned about how much equity is in the property because the equity is their protective measure against default. Therefore, most hard money lenders are going to want to inspect the property before issuing a loan. Choosing a local lender makes the inspection process easier.

Insist on Transparency

Don’t sign paperwork blind and never sign a contract you haven’t read fully. Some hard money lending companies don’t abide by standard business practices. They may coerce you into a bad deal by promoting teaser rates. Insisting on transparency every step of the process ensures you have a better handle on the situation and know the exact terms of the deal.

Know Your Hard Money Needs

There are many types of real estate investors. What type are you? Are you a house flipper searching for a property to buy cheap, fix up, and sell for a profit? Are you interested in buying several homes and flipping them at the same time? Perhaps you’re interested in buying homes cheap and renting them. You might not be interested in residential properties at all, but are more interested in commercial properties. Knowing the type of investor you are helps you find the best investment lenders and the cheapest rates. Some hard money lenders only provide loans for residential real estate, whereas other lenders have numerous programs for all kinds of investment opportunities.  

Giving Loan

Lender vs. Broker

Not all investment lenders are the same, especially when it comes to hard money lending. Ideally, you want to work with a local lender. Doing so ensures you get personalized customer service and you always knows who has your loan. Some hard money lenders aren’t lenders at all, but they’re actually brokers and take your information then work to find an actual lender to help you get the money you need. While there’s nothing wrong with this system, not every investor wants to work with brokers. Decide what type of investor you are in this regard and choose accordingly.

How Fast Do You Need Funding?

When choosing a lender, this is an important question to ask yourself. Hard money lending goes faster than traditional bank loans, but each lender works within different timeframes. Most hard money lenders process loans within 7-14 business days. However, there are some who have the ability to process loans in as little as 5 days. Knowing how fast you need your money will help you make the best choice.

Are you looking for a hard money lender in Texas? Call or visit Investor Loan Source today to learn more about hard money loans for real estate investors in the Houston market.

Tips to Qualify for a Hard Money Loan

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Hard money loans in Texas are a little bit different from regular bank loans. Those who have never tried to obtain one of these loans before may be a little unclear about what they need to qualify. Compared to traditional loans, there are fewer requirements. These loans are asset-based meaning the lender will mostly look at the value of the property and the borrowers’ equity in the property. The larger the equity, the safer the loan will be for the lender and the more likely they will be to approve the borrower. Lenders also look at the financial strength of the borrower. They want to be sure that you will have the money needed to make monthly loan payments and cover all the other responsibilities of caring for the property. Keep reading to learn more about what lenders look for in a loan application and how you can improve your odds of getting approved.

Down Payment and Equity

The main thing you’ll need to qualify for a hard money loan is the necessary down payment or equity in the property. This will serve as collateral for the loan. For residential properties, the minimum amount ranges between 25 and 30 percent. The minimum increases to 30 to 40 percent for commercial properties. You will have a better chance of qualifying for hard money loans in Houston if you have a larger down payment. The more money the borrower has invested in the property, the less risk for the lender. In some cases, you may be able to use multiple properties to secure a loan. This process is known as cross-collateralizing.

Overall Financial Strength and Cash Reserves

The next thing you will need to have to secure a hard money loan is enough cash reserves to make monthly loan payments and holding costs. The holding costs usually include taxes, insurance, HOA payments, and other costs for property maintenance. The more cash you have to show the lender, the better your chances of approval will be. If you do not have any cash reserves, you will have a hard time obtaining a hard money loan. In certain cases, the lender may be able to increase the amount of the loan and hold back the funds of the borrower to cover the holding costs. This way, the borrower can still get the loan, and the lender will have more assurance that essential payments are being made. 

Couple Speaking with Realtor

Real Estate Experience and an Exit Strategy

Additionally, your lender will want to know that you have experience in real estate. Someone who has been investing in real estate for years and years will have an easier time qualifying for a hard money loan than someone who is trying to fund their very first house flipping project. They will also want to know about the details of the property and the project, especially if you don’t have a lot of experience in real estate. You will need to prepare an exit strategy for the property and how you plan to repay the loan as well.

For more information about hard money loans or to apply for one today, contact us at Investor Loan Source.

Signs of a Hard Money Loan Scam

Couple Talking to Banker at the Bank

Hard money loans have become a common tool used by real estate investors who need lump sums of money quickly to seize profitable opportunities before they slip away. Unlike traditional lending sources which require a much longer timeframe before releasing funds, hard money loans can get money in the hands of investors quickly with little risk since the loan uses the property as collateral.

While most providers of hard money loans in Houston, TX, are legitimate private parties willing to invest in property-backed lending opportunities, there are some loan providers who run fraudulent schemes on borrowers. Hard money lenders aren’t held to the same regulatory standards as traditional lenders, and therefore the industry features loopholes which can be exploited by unscrupulous lenders. Fortunately, it’s not hard to spot scammers in many cases if you know what to look for. Keep reading to learn how to get hard money loans in Texas without falling into a scam.

Shady Rate Structure

A sure sign of a scammer is a lack of transparency when it comes to loan rates for hard money. Rates should be honest and fair. Though you will usually pay higher interest rates on hard money loans when compared to traditional funding sources, rates shouldn’t be exorbitant. Rates above 18 percent should be a red flag that something may be awry. Likewise, if the lender gives you a rate that seems exceedingly low, such as below 10 percent, something foul may be afoot as well. Lenders who give you a low rate upfront may later come back with exorbitant fees that can drive prices higher. You’ll also want to avoid any lenders who won’t present you with a clear-cut APR. If they won’t provide you with that basic information in a forthright manner, move on to another option. 

Abbreviated Application Process 

One of the benefits of hard money loans is that the application process is streamlined so that lenders can provide funds to real estate investors quickly and efficiently. That doesn’t mean that there shouldn’t still be an application process that requires you to submit key details and sign a contract. If a lender fails to require you to apply before providing you with funding, there’s a chance that there are nefarious ends in store for you. The process should include filling out forms and allowing the lender to inspect the property. It usually takes several days. If the lender you’re considering doesn’t want to see the property and requires no up-front paperwork, there could be a fraud in the making. Also, if a lender claims to provide funds for anything, it could indicate bad intentions.

Person Looking up Lenders on Their Computer

Phantom Lenders

A reputable lender is easy to find by using internet search engines. Most good hard money lenders have been around long enough to build a successful business under a recognizable name. If you search for a lender online and can find nothing about the company, it may be a sign of a scammer. Many lending scammers operate a short time under one name, then shutter the operation and open another under a new name to prevent former bilked customers and authorities from catching up to them. A lender with good business practices and ethical lending standards will want its name to be known. A company that remains in the shadows is there for a reason.

If you’re considering hard money lending in Texas, be sure to use this advice to avoid potential scams that can submarine your real estate transactions and create frustration. To learn more about the characteristics that separate scammers from legitimate hard money lenders, visit Investor Loan Source at