When one seeks a hard money loan, he/she gets an insight into real estate financing. Houston hard money loans are often referred to as the best friend of a real estate investor or developer. It is perhaps the quickest and safest path to secure a real estate investment deal. One must also understand that hard money can get complex in no time. Therefore, understanding the pros and cons of the lending process is necessary before making any final decision.
The big picture of hard money loans
It is an alternative method that allows an investor or developer to fund his/her real estate projects outside the conventional bank mortgages. This is short-term lending where funding is secured from private and individual investors, unlike traditional mortgage institutions like banks, and credit unions. Hard money loans are primarily used by real estate developers and investors to renovate or improve properties and then sell them at higher prices. This is known as flipping housing projects, and hard money loans are the preferred choice among investors and developers of such projects.
Reasons to seek hard money loans
Houston hard money loans can be utilized for a wide array of investment purposes and types. Hard money in real estate is used for both residential and commercial properties and is widely popular. The rising popularity is due to the quick timeline of loan approval, and the requirements are based on the property value rather than on the credit capacity of the borrower.
Some of the common and popular reasons for seeking hard money loans are mentioned below:
Flipping properties
Real estate investors buy low-cost properties in need of repairing, execute value-enhancing renovations and then flip the homes for profit by utilizing hard money loans. Since such projects take place rapidly, investors and developers prefer faster financing which is catered by Houston hard money loans. The flipping house investors and developers seem less worried about higher interest rates. This is because the end motive is selling the property at profitable rates.
Investment property purchasing
People planning to invest in rental properties but fail to qualify for traditional mortgage financing can always seek out hard money and pay for the investment property. Hard money lending proves to be efficient, and useful as the credit history of the borrower is not important, unlike traditional bank loans, and credit union mortgages.
Commercial real estate purchasing
Similar to flipping housing, and investment property, an individual can purchase a commercial property utilizing hard money loans. This is more prevalent when the individual is unable to secure traditional bank financing. Hard money loans are popular among business owners, real estate investors, and developers for buying properties in a faster, and less complex loan process.
The above-mentioned are the three key reasons why real estate investors and developers seek hard money loans. Reputed and popular real estate professionals wouldn’t find it a challenge in getting traditional bank loans. But the time required to apply for the loan, and the process involved are quite long as compared to hard money loans that don’t even take a week for approvals.
Using hard money for real estate investment
Houston hard money loans offer loans for any type of property. But there are certain specific types of real estate property investment that are created for hard money lending. Land and construction development, rehab projects, etc., are made to be financed via hard money. This doesn’t imply that other types of investments in real estate cannot be financed through hard money lending. The reduction in the complicated loan process and faster loan approval are the primary reasons for hard money lending among real estate investors and developers.
Traditional loans versus hard money loans
Traditional loan
In a traditional loan, the lender is strict with the credit history of the borrower to evaluate his/her potential to repay the loan amount. If the borrower meets the financial standards and terms of the lender, the loan is approved. The different types of traditional loans include mortgage loans, personal loans, auto loans, home equity loans, etc. Conventional money lenders evaluate the financial situation of the borrowers thoroughly. Based on their assessment of the borrower’s income, credit history, present debt, down payment amount, and other assets, the decision of loan approval is initiated.
Hard money loan
Concerning hard money loans, the lender approves financing to a borrower based on the purchased property value. The lender undertakes a rapid evaluation of the credits of the borrower, but the process is less time-consuming, and not rigorous as traditional mortgage loans. Henceforth, the hard money lending process is quicker and the borrower gets capital within a few days of a loan application. This is in total contrast with the traditional loans which can take up to a month or even more for loan approvals.
The downside of hard money lending is that the lender undertakes more risks, and thereby the borrower has to repay higher interest rates. This is added with a short repayment period, unlike traditional mortgages. Despite the risks involved, and the higher loan repayment interest rates, real estate investors and developers still favor hard money lending over traditional bank mortgages. The less complicated documentation, simple loan process, and faster approval make it the most favorable financing method in real estate investment.
Conclusion
Houston hard money loan is a useful tool for individuals in need of immediate and assured financing. However, their interest rates are higher and are also linked with risks especially when the investment doesn’t go as per plan. Hard money lending requires some basic understanding and the knowledge of downsides that can be utilized as benefits. When a person has complete knowledge and in-depth understanding, handling it becomes easier and way simpler. Henceforth, often hard money lending is best left to professionals and experts in the field. It is no doubt considered the best alternative financing method to traditional bank mortgages. The borrowers can be assured of securing capital for real estate investment faster, and more efficiently. Hard money loans offer an edge over those borrowers who seek conventional financial tools.