Common Hard Money Lending Mistakes You Should Avoid


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.


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.