Funding a real estate business isn’t easy if an individual doesn’t have money. Saving for the project may take years, and the strict terms involved in traditional loans may be annoying. Therefore, an individual needs to consider other options of getting funds to start their real estate business. That’s where hard money lenders in Houston come in.
Although some consider hard money loans as the culprit behind the housing crash of 2008, it can be a great alternative to conventional loans. Having been around since the 1950s, it’s a vital tool that can help investors finance their projects. Veteran real estate developers may know the advantages of flipping houses using hard money loans, especially if they’ve used it before. But some don’t know the benefits of borrowing money from hard money lenders.
This article explains the advantages of working with hard money lenders to start a real estate business.
- They Approve Loans Quickly
Unlike the conventional money lending options that get a person’s loan approved after some days, hard money loans can be approved within the day of application. Hard money lenders survey the collateral property, tell the borrower the amount of equity or down payment that he or she needs to make, work out the exit strategy, and confirm that the borrower has some money reserved for monthly installments. If all these things tick, the borrower’s approval is done.
Hard loans also don’t take long to receive approval because they don’t require a lot of application and legislative processes. One only needs to build a good relationship with hard money lenders in Houston and have a property that can enable them to get a loan. With those in hand, a borrower can be sure that his or her loan approval process will be quick.
- They Offer Flexible Loans
Unlike banks that consider bankruptcy, short sales, and recent foreclosures before giving a borrower a loan, hard loans have flexible terms. Hard loans depend on one’s property, making it unnecessary to impose many underwriting rules on the borrower. Instead, their loans are evaluated individually, depending on the borrower’s relationship with the lender and the property’s value.
That makes it possible for borrowers to sign clauses for the contracts they’re comfortable with. The good news about these contracts is that they can be changed to fit the borrower’s amount and payment schedule.
- They Give Loans That Banks Don’t Offer
Most banks don’t give loans that have a repayment period of fewer than twelve months. That’s because they would love to get small amounts of interest for long periods. Therefore, an investor who needs a short-term flip loan to buy property, repair, and sell it may fail to get such a loan from the bank.
Additionally, most banks also consider the risk involved when lending a loan. If they realize that the loan needed by a borrower is meant to refurbish a house with a weak foundation, poor electrical installation, and cracked walls, they may not grant the loan because they may consider the house very risky to live in.
Hard money lenders, on the other hand, do not consider the purpose of the loan but the collateral. Therefore, if a borrower seeks to borrow a loan to improve any house of their choice, hard loaners won’t have any problem with that as long as the loan is worth the value of the collateral property. If one doesn’t pay the loan, they can still sell the property and get their money back.
- They Don’t Factor in Credit Scores
One great advantage of hard money lenders is that they don’t care about an individual’s credit score, unlike banks. That makes hard loans an excellent option for people who can’t access conventional loans because of bad credit scores. The factor that determines whether one gets hard loans is the value of the investment property. The hard money lender will do a property valuation to confirm whether it’s worth investing in the property. If the collateral’s value can enable a borrower to acquire a loan, the borrower will get the money regardless of his or her financial position.
Additionally, hard money lenders can give an individual a loan using property that they already own as collateral. Apart from that, they can also offer loans based on the total costs it would take to flip a property, as long as there’s agreement on the equity.
- They Disburse Their Loans Fast
Unlike banks, hard lenders may take up to a month to disburse loans and payout their loans within 3-5 days of application. Investors who want to close deals fast can consider this option. Investment in real estate property may sometimes be time-bound and competitive. Hot markets have multiple bids on the same property, and without money, acquiring them could be problematic. However, with the fast payout of hard loans, an individual can buy a suitable property that would be impossible to obtain if they took a traditional loan.
Also, some hard money lenders can lend borrowers more money without the need to make a down payment. That’s because they only need their collateral property. This ensures the money reaches the hands of borrowers fast.
- They Don’t Consider Past Financial Mistakes
Hard money lenders don’t punish individuals because of their past financial mistakes. Conventional lenders don’t give loans to people with bankruptcies, foreclosures, and loan modification. However, hard money lenders can give anyone a loan, provided that they have an asset and make a down payment.
Though some people may consider working with hard money lenders an expensive option, there are many benefits. If one is a real estate investor who can’t get loans using conventional methods, hard loan lenders may come to his or her aid. As long as the borrower has a property that’s worth the value of the loan, he or she can qualify for a hard loan. These loans are also a good fit for any investor because they are flexible, approved fast, and disbursed quickly.