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.
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.
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.