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.

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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.

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