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.
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.
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!