Real estate investment is a lucrative avenue to build wealth and it is a good way for diversifying your portfolio. There are real estate investment trusts as well as real estate crowdfunding that enables you to invest in a passive manner, however, some investors want to own property. If you do not want to part with a huge amount of money upfront for buying a real estate then hard money loans Houston is a good option. This kind of loan has benefits compared to traditional financing.
Hard money loans are a kind of loan that is secured by real properties. These loans are the short-term bridge loans or loans of the last resort. They are used primarily in real estate transactions and the lenders are companies or individuals and not banks.
How do hard money loans work?
Hard money loans, also referred to as bridge loans are generally the short-term money lending instruments, which real estate investors use for financing an investment project. These loans are tools for real estate developers or house flippers, whose objective is developing or renovating properties and then sell properties at a profit. Hard money loans, Houston, are provided by private lenders and not by financial institutions including banks.
If you want to obtain hard money loans then unlike traditional banks, financing is not decided by the creditworthiness of borrowers rather lenders of hard money use the property’s value to decide whether to offer the loan or not. The lenders focus mainly on ARV or “after repair value”, an estimate of the worth of the property after the development or renovation phase is over. The cost of hard money loan is higher and borrowers intend to pay off this loan quickly. The hard money loans are generally 1-3 years.
Why use Hard Money loans Houston?
Hard money loan is expensive still many borrowers use it when they cannot avail of traditional funding. Some of the reasons to use it are as under:
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Speed
As hard money lenders are focused mainly on collateral, you can close hard money loans more quickly than traditional loans. Lenders will not take your property’s possession and they will not spend a great deal of time to go through the loan application such as reviewing the bank statements, verifying the income, and others. After you have established a relationship with lenders, the loan process moves quickly and you can close deals, which others cannot close.
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Flexibility
Hard money loans Houston is more flexible compared to traditional loans. Lenders do not use a standard underwriting process. Rather they evaluate every deal separately. According to the situation, you can tweak things such as repayment schedules. You might borrow from individuals and nor buy from large corporations that have strict policies.
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Approval
One important factor in hard money lending is collateral. When you buy investment properties, the lenders shall lend according to the worth of the property. When you have to borrow against different properties that you own, the lender cares about the value of the property. If you contain negative items or a foreclosure in a credit report, it is not so important because many hard money lenders may not look at the credit.
Many hard money lenders try to keep LTV ratios or loans-to-value ratios low. The maximum LTV ratio can be 50-70%. With such a low ratio, lenders can sell the property quickly and get their money back.
Conclusion
Hard money loans Houston are short-term loans. Real estate investors are users of hard money loans. When you evaluate hard money lenders, look at the interest rates, fees, and loan terms.
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