Bank vs Hard Money Loans

House Keys

Are you familiar with the term hard money loan for real estate investing funding in Texas? You might have heard of this kind of loan before, but you may not understand how it differs from traditional bank loans. If you’re considering investing in real estate but don’t have a solid financial background or good credit, keep reading to learn the benefits of hard money lending.

Timeline

Hard money loans aren’t ideal if you’re buying your forever home and looking for a low-rate on a 30-year mortgage. However, these loans are wonderful for house flippers looking for short-term lending options. The interest rates on hard money loans are higher than your average home mortgage and are a high-cost lending product for the average buyer. However, real estate investors aren’t your average buyer. When you invest in real estate, you need cash fast to make the deal and turn around the home as quickly as possible. For house flippers looking for legitimate real estate investing funding, hard money loans provide many benefits.

Credit Isn’t an Issue

Traditional banks have strict lending policies and require minimum credit scores from their applicants. Hard money loans might look at your credit, but this type of real estate investor funding is concerned more with how much equity is in the property than your credit score. Most investors with poor personal credit scores don’t have a problem qualifying for a hard money loan based on their credit history. Instead, the hurdles they face may have more to do with the amount of equity in the property.

If you’re considering purchasing a piece of property with a hard money loan, do your research. Hard money lenders invest in properties with 30%-50% of equity in the property as a protective measure. What does this mean for you? It means you need to find properties at the right price to make hard money lenders happy. While they may loan you up to 100% of the purchase price, they want 30%-50% of built-in equity already in the property. Therefore, if you default on the loan, they’re able to recoup their investment.

Money

Stream-lined Processes

Traditional bank loans can take as much as 90 days to close. This means 3 months waiting for keys to the property. Anyone interested in real estate investing knows that timing is everything. What’s hot today might not be hot 3 months down the line. For this reason, hard money loans make better sense for investors. Depending on the type of loan you’re applying for, the closing process can be completed in as little as 5 days. Hard money lenders look at each case individually and aren’t tied to strict lending requirements like traditional banks or mortgage lenders. This is a huge benefit for real estate investors who need to close a deal fast.

The biggest difference between traditional bank loans and hard money loans is that hard money lenders have programs designed specifically for investors. These loans make the process quick and easy, include funding for repairs and renovations, and don’t require any money down. If you’re interested in learning more about accessing a real estate investing fund in Texas, contact Investor Loan Source and learn more about their residential, rental, and commercial investor loans.

Hard Money: The Best Choice for Commercial Real Estate Loans

Men shaking hands over paperwork

In the realm of commercial real estate, time is of the essence. When opportunity knocks, a savvy real estate investor must be able to seize it by having money to push a transaction through before another investor can pounce on it. That’s one reason that hard money lending in Houston, TX, has recently come into vogue for those who make a living from commercial real estate investments.

Hard money loans are approved and executed on a fast timeline because they are not secured by the borrower’s credit, but by the value of the property to be purchased. That makes them a nimble lending tool for those who must capitalize on the dynamic commercial real estate market. Continue reading to learn more about how you can use hard money lending in Houston to give you greater financial fluidity for closing commercial real estate transactions.

Negates Importance of Credit History

Those who are getting started in commercial real estate investment may not have a long loan history that can be used to satisfy the demands of traditional lenders. Also, some investment groups may be newly-formed LLC organizations that have absolutely no borrowing history at all. Hard money loans can help overcome those traditional obstacles to becoming a player in the commercial real estate game.

The money loaned in a hard money transaction is not contingent on the credit history of the borrower, but the value of the property to be purchased with the loan. Therefore, hard money loans provide the perfect option for those who want to get involved in commercial real estate who may have a checkered or inadequate credit history.

Makes Your Deal More Powerful

Countless commercial real estate deals fall through once under contract because the loans fall through at the last minute. Banks and other traditional lending organizations must meet stringent guidelines when loaning capital for commercial projects, and sometimes, those demands simply can’t be met. In those cases, the seller wastes time and loses a sale in the process.

A hard money loan can make your offer more attractive amongst a sea of offers based on traditional lending because it’s less likely to fall through. Because hard money loans streamline the lending and approval process, you can quickly be ready to close with funding in hand. A seller will appreciate that increased confidence in the sale, and your odds of completing the transaction are enhanced.

Provides Buyer Leverage

In a competitive commercial real estate environment, the seller may have the upper hand. The property on the market may be in a prime location, for example, so offers on it come from many angles. That allows the seller to pick from any number of attractive offers. However, use of a hard money loan can provide the buyer with additional leverage. A hard money buyer is attractive to a seller because of the reduced risk of loan denial and a faster escrow and closing timeline.

Therefore, among a sea of offers, the buyer with the hard money will be the seller’s preference. That gives the buyer some leverage to negotiate in some cases, as a hard money loan sale benefits both parties.

Businessperson showing model of condo complex

Speedy Approval Timeline

Maybe the biggest benefit of using hard money loans for commercial real estate transactions is the fast application timeline and quick availability of funds. With a traditional loan, you may not have the confidence to make a binding offer until the loan is approved. In those cases, you may miss out on a chance to put in an offer on a prime piece of commercial real estate. However, because the timeline for a hard money loan is much shorter, you can get involved with an offer more quickly, thus enhancing your chances of closing on the property and beating out other suitors.

If you want to increase negotiating power and enhance your chances of closing on commercial real estate in Houston, TX, hard money lending can provide you with an advantage over other potential buyers. It’s quick, streamlined, and increases your likelihood of successfully completing commercial transactions. For more information on hard money lending for commercial real estate, contact Investor Loan Source.

Hard Money vs Private Money Loans: Know the Difference

Businessman counting out cash for loan

Do you know the difference between private loans and hard money loans? If you’re interested in real estate investing, it’s important to know the difference. While they each have their similarities, there are quite a few distinctions between the loan products that house flippers must know. Keep reading to discover why hard money lending in Houston, TX, is a better option for real estate investors.

Credit Scores

A lot of people with less-than-perfect credit scores want to get in on real estate investing opportunities. Renovating and flipping houses is a great way to build wealth when it’s done correctly. However, many people who have the skills to do the job well lack good credit. If your credit is holding you back from opportunities, Houston, TX, hard money lending might be the answer.

Private loans that are managed by traditional lenders like banks and credit unions have strict credit requirements. If you have a credit score below 700 or 650, it’s harder to get approved for a loan. Hard money loans have fewer credit restrictions because they are more interested in the property’s value. That being said, if the property doesn’t have equity or isn’t worth much in the market when it’s fixed up, the lender may pass on the deal.

Interest Rates

You’ve probably heard that interest rates are higher for hard money loans than private loans. This is true, and there’s a very good reason for this. Ideally, when a person applies for a hard money loan, their goal is to pay the loan back within 6 months to 3 years, depending on how fast they’re able to move the property. People who take out private loans aren’t usually investing in property they’re going to sell for profit within a few years. Instead, these are your traditional home buyers.

When dealing with hard money lending in Houston, it’s important to understand that private loans have a longer period to collect interest payments. Therefore, the rates appear to be substantially higher for hard money loans, but it all equals out in the long run.

Process Timelines

Money lending in Houston doesn’t always go as fast as you need it to for an investment property, if you’re trying to get a private loan. That’s why investors choose hard money loans. The private loan process can drag out for months and require a lot of paperwork and verification.

With hard money products, the lenders want the process to go as quickly as you do because they want to see a return on their investment as quickly as possible. Whereas private loans might take 1 to 3 months to fund, hard money loans can be funded in as little as 7 days, depending on varying factors.

Interior of home with fixer upper stamped over

The Bottom Line

So, which loan product is best for you? It all comes down to why you’re buying the property. If you’re a real estate investor looking to make quick cash on a “flip” house, then hard money loans are the better deal. They’re easier to get with less-than-perfect credit, and the funding process isn’t as long. For people buying their forever home, it’s a better deal to go the private loan route and find a lender offering great 30-year or 15-year interest rates.

To learn more about money lending in Houston, TX, contact Investor Loan Source today for commercial, rental, and fix & flip loan options.

Common Hard Money Lending Mistakes You Should Avoid

Prequalification

Hard money lending in Houston can be a sale-saving source of funds for some contractors, prospective homeowners, or business owners who need to make capital improvements to their facilities. If a person needs cash quick or has credit issues, a hard money loan might be the only option they have. There are, however, some things common mistakes everyone considering hard money lending as a funding source should avoid before they sign on any dotted lines.

Not Getting Prequalified

Setting up as a sale before you know you can fund it makes no sense. Getting prequalified for any money lending arrangement is smart business because it makes your purchase a cash buy for all intents and purposes. That not only will appeal to sellers, but it also will expedite the purchase process. It will make a sale go quicker than having to wait for approval for a bank loan and can open the door to negotiate a better price. Avoiding the paperwork, wait, and processing of a loan usually makes a seller much more open to coming down in price.

Finally, liquidity lets you get started if you are borrowing for a project. Waiting on a loan can take days or even weeks, which means you and your crew aren’t able to start work on a project. Having preapproval gives you the cash you need to start buying supplies, lining up contractors, and even to complete actual project work. That ultimately saves time and money, which makes it easier for any contractor or developer to hit their budget goals. There is a reason the saying “cash is king” has been around for so long!

Not Building a Relationship with the Lender

This is just common sense. When you deal with a bank, it’s easy to treat the entire transaction as a swap. You present the bank with your credit score and information and ask the bank for a certain amount. Then, the bank looks at your credit score, and, if it’s good enough, offer you a certain amount. With hard money loans, though, relationships between the lender and borrower are much more important. The more they know about you and your project, the more likely it is they will view you as a worthy investment.

The other benefit of building a relationship with your hard money lender is the fact that they likely will know the market better than you. Even if you work in the market you are securing the loan in, the lender will have a broader perspective of what is going on in the entire region. Having a relationship with them will likely lead to them giving you useful tips and advice regarding different properties or projects in your area.

Handshake

Fretting the Interest

A hard money interest rate is high; there is no getting around it. When you consider the risk the lender takes and the terms you get, the rate isn’t all that much. Consider this:

  • You can get a loan much quicker than if you went through a bank.
  • You can get a loan if your credit is less than perfect.
  • You get access to immediate cash upon approval, which can give you leverage with a seller.
  • You get access to money with no risk to your credit rating.

Houston, TX, hard money lending is one way of getting the cash you need for an investment quickly and easily. For more information on hard money lending or how to get a loan, check out Investor Loan Source.

Understanding the Types of Commercial Real Estate Loans

Couple with Realtor

Are you looking for your first real estate investment loan in Texas? If so, it’s important to understand how these commercial loans work. In most cases, these kinds of loans are used to purchase and/or renovate properties that are owner-occupied. Generally, these loans are for properties such as office buildings, retail centers, and mixed-use buildings. Keep reading to learn more about the 5 main types of commercial loans and how you can qualify.

SBA 7(a) Loan

This type of commercial loan is for the investor who wants to buy a commercial property for the long-haul. It’s an owner-occupied loan for commercial properties up to $5,000,000. Real estate lenders in Texas want applicants to meet the following qualifications:

  • In business for at least 2 years
  • Have a credit score of 680 or higher
  • 51% owner-occupied

The loan period for this type of loan is up to 25 years and funding is available between 60-90 days.

CDC / SBA 504 Loan

If you’re looking for a commercial loan with no maximum limit, this is a loan product for you. That is, as long as you meet the credit requirements of a 680 credit score and have at least 10% for a down payment. The loan terms for this loan are shorter with the average term falling between 10 – 20 years.

Traditional Mortgage

For people more comfortable with traditional loan terms, the traditional commercial mortgage is an attractive loan product. However, as with most traditional loans, credit requirements are strict. You must have excellent credit, with a score no less than 700. You also must have at least a 15% down payment. One of the benefits of a traditional mortgage is there’s no maximum limit, which is attractive for those investors looking for a good real estate investor loan.

Filling Out Forms

Commercial Bridge Loan

Not every investor is looking for lengthy loan terms. If you fall into this category, a commercial bridge loan is an excellent option. These are short term loans of 6 – 36 months. They also have the following requirements:

  • 700 or better credit score
  • A net worth equal to the loan amount
  • Have experience with 1-3 commercial investment projects
  • 10% down payment

This loan product is great for investors who want to get into a project quickly since funding occurs within 15 – 45 days.

Commercial Hard Money Loan

This is another short-term loan option that has lower credit score requirements and is a great way for people with bad credit to get real estate investment loans. Many people use hard money loans for renovation projects and when they need quick funding. The average funding period for hard money commercial loans is 10 -15 days. When applying for this type of loan, you’ll need a proof of down payment, experience with 1-3 commercial renovation projects, and a 10%-20% down payment.

Commercial loan products are not the same as traditional residential mortgage loans. For this reason, it’s important that investors understand the loan product completely before signing any papers and receiving any money. To find a commercial real estate loan in Texas for your next project, work with the best lenders. Contact Investor Loan Source today to learn more about the loan options available to you.

Debunking the Myths about Hard Money Loans

Money bags and house cutout on balance scale

Many people don’t understand how hard money loans in Houston work, especially when someone is first learning about them. There are a lot of misunderstandings about how these loans work and why you would want one. A lot of people automatically assume that they won’t qualify for these loans and that there are too many hoops to jump through to secure the financing. Continue reading to learn more about this type of loan product and discover the facts.

Myth #1 – These Loans Are a Scam

Any lender can be dishonest. It doesn’t matter whether it’s a lender who specializes in hard money loans in Texas or a traditional bank. People often associate hard money lending with desperation, because they require the property to have 30% to 50% of equity. The reason for the strict equity requirements isn’t a scam; it’s a safety measure for lenders. They want to make sure that, if the client defaults on the loan terms, they don’t lose all the money they invested. It’s an exit strategy, and all investors want a clearly defined exist strategy. That’s just good business.

Myth #2 – Hard Money Loans Are Expensive

All financial institutions that lend money have varying loan structures and required fees. Hard money lenders offer competitive products. So, if you’ve been told that a certain lender is too expensive, do your research. Look at several different lenders before settling on one.

This is good advice no matter what type of loan you need, because pricing isn’t set across the board. Some lenders may charge higher interest rates. Others may have pre-payment penalties or other requirements that affect the cost of the loan. Most people who claim their hard money agreement was too high say this as a direct result of not researching their options beforehand.

Businessman handing cash across desk

Myth #3 – Traditional Loans Aren’t as Risky

Any loan carries risk. So, why do people get spooked by hard money loans in Houston, TX? First, it’s likely that people aren’t doing their own research but listening to other people’s horror stories. Second, they aren’t taking into account that there are 2 sides to every story. Most people who’ve had a bad experience with an investor-focused loan product weren’t prepared when they took out the loan.

Traditional loans are great for people who want to buy a house and stay in it for 10, 20, or 30+ years. They aren’t ideal for investors who want to get into a house and flip it for a profit. Investor loans do have higher fees and rates. but only if the investor hangs onto the property too long.

The best way to use a hard money lending product is to have a solid plan for flipping the home quickly. People who know how to manage the money on projects like these find that it’s easy and affordable to take out a hard money loan.

First-time Investors

Are you a first-time investor interested in profiting from real estate transactions? Then it’s important to learn as much as you can about Houston, TX, hard money loans. Discover how these loan programs can help you achieve your real estate investment goals and grow your wealth. For more information about investment loans, contact Investor Loan Source today with all your questions.

Top Reasons Why Hard Money Loans Are Rejected

Buying a House

Hard money loans in Texas are considered to be one of the easiest kinds of loans to get. They are preferred among real estate investors because the application procedure doesn’t include things like income history or credit worthiness. Instead, lenders are more interested in the property’s value. That being the case, there are times when this type of loan might be denied. If you’re a real estate investor, keep reading to learn why your loan application could be denied.

Equity Concerns

Most hard money loans in Texas are not for the full amount of the property. Lenders aren’t keen on financing the entire purchase. These loans are only meant to help out with some of the investment costs. Investors often run into problems getting approval for this transaction when there isn’t enough equity in the property to borrow against. Most lenders want at least 25% equity to consider a loan application. If the property doesn’t have this much equity, then you’ll need to come up with a larger down payment to offset the difference.

Lack of an Exit Strategy

Private money lenders want to know your exit strategy. If you don’t have one, forget about nailing down hard money loans in Houston. Why is this strategy so important to lenders? Unlike conventional home loans, hard money lending products are designed to be short-term. Since these products are for the investor, they rarely offer loans beyond 1-3 years. At the end of the term, the remaining balance is due, which in many cases means a hefty payment. Lenders don’t want to be on the hook for 5 or 6-figure balances. Therefore, hard money lenders want to know what you’re going to do if you can’t pay off the balance at the end of the term.

Examples of common real estate investor exit strategies include the following:

  • Refinancing either with a new hard money loan or a conventional loan
  • Selling the property
  • Selling another property and using the proceeds to pay off the balance

Not Enough Money to Make Monthly Payments

While it’s true that credit scores, past foreclosures, and income history don’t matter as much when applying for hard money loans in Houston, TX, you still have to prove you can afford to make monthly payments. If your income falls short, lenders see this as indicator that you might not pay back the money. You can prevent a denial because of income shortfalls by proving with income statements and/or bank statements that you have the money to follow through with your financial obligation. Investors that don’t have substantial cash reserves often team up with more financially stable partners to avoid being denied.

Signing a Form

Are you ready to apply for one of these loans? Houston, TX, hard money loans are easier to obtain than going to your local bank branch for a conventional home loan. However, before you seek out one of these loans, make sure the investment property has enough equity and that you can make the monthly payments. Many investors find that future loans are even easier to get when they establish a relationship with their lender. Therefore, find a hard money lender whose terms you like and work to establish a relationship for future investments.

For great terms on hard money lending products, contact Investor Loan Source today!

All You Should Know about Real Estate Financing

Sign

Buying your first investment property is exciting and also filled with many decisions. One of the first decisions you must make is choosing real estate financing. When you purchase an investment property, you probably have questions about the best types of investor loans in Texas. There’s a lot to consider but take a moment and keep reading to get a better understanding of real estate loans for investment properties.

Do Your Research

There are a lot of loan products on the market. Some are great, and others aren’t worth much. The last thing you want to do is rush into making a decision. Research all the investor loans in Houston, TX, and know what you’re looking for. Are you planning to use the investment property as a rental or will you be flipping the property? If you’re planning to flip the property, be careful with high-risk loans that start off with a small APR rate and increase after a few months. Although you have plans to sell the property quickly, keep in mind that the market doesn’t always support a quick sale.  

There are several types of Texas investor real estate loans designed specifically for house flippers. These loans are often tiered products based on credit-worthiness and offer 6-12-month loan terms with no down payment required. You can also find loans available for 20-year terms with low interest rates for one-to-four-family unit housing. Whatever type of investment property you’re interested in, there’s a loan for you as long as you do your research.

Get Preapproved

Preapproval isn’t just for buyers who plan to live happily ever after in their dream home. Getting preapproved for a loan is a smart idea for every type of buyer. Not only does this let you know how much you can actually afford, but it makes your offer as strong as possible.

Loan

 

Don’t Spend to the Top of Your Budget

With your first investment property, it’s important to keep your costs as low as possible. This means not spending your full budget on a property. There are plenty of Houston, TX, investor real estate loans for all price points. Staying toward the lower end of your budget—not just in terms of price but loan terms too—keeps you in the safe zone. It makes investing in real estate as stress-free as possible and sets you up to build your portfolio.

Work with Loan Companies Geared toward Real Estate Investors

A mistake that many first-time property investors make is that they choose to work with a lender that doesn’t understand your unique needs. Many traditional loan products place restrictions on their products that make it difficult to make money off your purchase. For example, if you’re planning to flip a house, a traditional FHA loan that requires you to live in the home for a certain number of years isn’t going to work for you. When you work directly with real estate investor lenders, you have access to loans that make sense for your goals.  

As a first-time real estate investor, the best decision you can make is working with a company that understands the value of investor real estate loans in Texas. If you’re looking for affordable investment loans, contact Investor Loan Source and tell them about your project for guidance and great loan programs.

Signs of a Good Hard Money Lender

Loan

When credit history is an issue with getting a traditional loan, one option is to work with a hard money lender. Hard money loans in Texas are readily available, but you want to make sure the organization you deal with is legitimate. How can you tell? Use these three criteria to make sure the group you’re working with is trustworthy and will provide for you the service you deserve.

They Check Your Credit

A big selling point for hard money lenders in Houston, TX, is that they don’t get hung up on credit reports. As long as you have a valid and stable source of collateral (hard assets like real estate), you’ll generally be able to qualify with hard money loan lenders. But that doesn’t mean they shouldn’t check your credit. You want them to at least look into your background. Every hard money loan lender you talk with should conduct a background credit check, even if the credit rating doesn’t matter or your history of repayment won’t factor into their decision.

They should make an effort to discuss how you will repay them and establish repayment guidelines for you. If they don’t check your credit or don’t seem interested at all, you may want to look at alternatives. A red flag they’re more concerned with moving money than with getting repaid is that they pay no attention to your history and if that’s the case, you should be concerned.

Their History

The key here isn’t how long they have been in business, but their loan volume. While a hard money lender that has been in business for a while is a good sign, if they haven’t distributed many loans, it might be a red flag that they’re stricter than your average hard money loan company. It also could be an indicator that their ability to secure investment capital is limited.

What you want is a company that has a steady history of approving hard money loans, and if possible, you want them to have many repeat customers. Repeat customers mean that they’re well regarded enough to gain repeat business. Another indicator they’re reputable is if their stable customers include known and well-regarded construction companies, developers, or real estate brokers. This is an indicator that they’re able to turn loans reasonably quickly and reliably. Securing a short-term hard money loan is often the difference between closing a deal or finishing a project. That’s why it’s crucial for hard money loan lenders to have reputable and consistent customers.

Cash

Multiple References

The only thing that serves as a good reference better than repeat business is customers who go on record supporting you. The hard money lender you work with should have a stable slate of customers who will vouch for the lender. If they have a high volume of repeat business, you can rest assured they’re well regarded.

Hard money loans can be a lifesaver if you can’t get a traditional loan. Making sure your lender is reputable is critical, and these three criteria will help you do that. For more information on hard money loans, check out Investor Loan Source.

Top Hard Money Loan Facts Every Borrower Should Know

Hard money loans can be a financial instrument that saves the day for those who need fast cash or have problems with credit history. There are, however, rules to using hard money loans that will save the borrower time and money as well. Here are a few of those rules every applicant of hard money loans in Houston should know going in.

Writing a Check

It Is Just a Loan

The term “hard money loan” sounds scary, like something you would wager at the end of a long night of losing at poker. In reality, a hard money loan in Houston, Texas, is a short-term loan that is secured by tangible assets, usually real estate.

Additionally, the lenders of hard money loans are not shady or threatening as some may think. They’re usually a private investor or investors who are willing to lend their own money for a small profit, as long as the borrower can put up the collateral to guarantee their initial investment. It’s important to remember, however, that the loan is meant to be short-term. Financially, it makes no sense if you are looking at hard money loans to extend it any longer than you have to because of the higher interest rate.

Getting One Is Easier and Less of a Hassle

To get the best hard money loans, you have to prove you own property that is worth the amount or more of the money you are borrowing, plus interest. That means the lender will not spend a lot of time on your credit history, current finances, outstanding debt, etc. They’re interested in making sure you can give them real estate or some other hard asset if for some reason you cannot pay off the loan.

Because of that, it takes a lot less time on average. Whereas a banking loan might take weeks, a hard money loan process takes a few days to a week. That means you can get access to the funds you need in a much shorter period of time.

Handshake

Hard Money Loans Are Not for Everyone

For some, hard money loans are nothing short of a miracle. They provide access to funds in a quicker time frame than normal or to people who otherwise would not qualify for a traditional loan. They are not, however, the perfect lending tool (which is why they are not the predominant method of lending money.)

If you’re looking for a long-term loan with low-interest payments, a hard money loan is not for you. The same is true if you’re using your real estate or hard assets to secure other loans or investments. If you can afford to part with a large chunk of change up front in any real estate transaction or construction project, a traditional loan might be the better, and less expensive, option. Finally, if parting with the collateral you put up is more than you could stomach if your fortunes turn south, a hard money loan is probably not right for you.

Hard money loans can be an effective bridge to help you get through a cash flow issue when traditional loans are not an option. For more information, check out the Investor Loan Source.