Not everyone has perfect credit or can wait potentially weeks to get approved for a conventional loan. Borrowers who can’t get a conventional real estate investment loan in Houston, TX, can get a hard money loan. For people who don’t qualify or have to jump through too many hoops to get loans in the timeframe that they need them, hard money loans are perfect as long as you have the collateral to secure the amount you borrow. Here’s how it works.
Asset Based Collateral
What is a hard money loan? It’s a short-term loan secured by real estate. Every lender will require you to put something of value behind your loan should you default. In the case of a hard money loan, you secure your loan with some tangible asset, usually real estate, that will serve as collateral should you not be able to honor the terms of the loan. While real estate is the preferred collateral, you should present to a hard money lender any asset you have that holds tangible value on the market.
Quicker Access to Cash
Hard money lenders are more interested in the property’s value rather than your credit history. This is because the higher your property value is, the more money they will lend you. Because the process is simpler and shorter in terms of approval, the turnaround is naturally quicker as well.
Conventional loans can take weeks as your credit history is being scrutinized and banking officers are deciding if they think you’re worth the risk. A hard money loan, upon verification that you own the property you’re placing as collateral, can be distributed in days. Some lending organizations even offer expedited decision making and delivery options if you’re in a real rush to get your money.
Higher Interest Charges
One downside to hard money loans is that the interest is higher than conventional loans. Typically, hard money loans rates start around 8% and can get as high as 18%. The interest rate is higher because you’re paying a higher premium for quicker access and less stringent assessments. Because money lenders take on more risk with their loans compared to conventional bank loans the interest rates are higher.
Short Term Repayment Periods
If you’re unable to wait for a long approval process for your real investment needs, hard money loans are an option. One thing to keep in mind is hard money loans have a shorter repayment period. They’re typically short-term, lasting a few months rather than years. You must present a repayment plan that shows how you plan on repaying the loan in full. If you’re taking out a hard money loan, have a hard asset you can put up for collateral and be able to pay the loan off to minimize your overall expense.
If you need to buy a property quickly because you’re afraid it’ll sell fast and can’t wait for a long approval process, or need quick cash for a fix and flip, consider hard money loans. For more information on lending alternatives, including real estate investment loans in Houston, TX, and other hard money lending options, check out Loan Source, LLC.