Everything You Need To Know About Hard Money Loans

Everything you need to know about hard money loans When it comes to the term ‘Hard Money Loans’ most people get the perception that these money loans are supposed to a hand out of money that you can spend it on anything, be it gambling, buying a new car, going on a shopping spree etc.

Everything You Need To Know About Hard Money Loans

When it comes to the term Hard Money Loans most people get the perception that these money loans are supposed to a hand out of money that you can spend it on anything, be it gambling, buying a new car, going on a shopping spree etc. but the terminology couldn’t be further away from the definition of the term. In fact, these money loans are meant for real estate investments. The following set of concepts will help you better understand how hard money lending works:

Asset Based Loans:

This means that the person who loans you this money is fully convinced, that the property you are purchasing is worth more than the amount being loaned to you. To better understand the concept, most hard money loans are given when the loan to value is at 65 percent or less. For example, if you decided you need a loan to buy a property that is worth $100,000, you will be given a loan that meets the 65 percent of that value. Thus, you don’t get the full amount of the loan when you acquire a Hard Money Loans in Houston Texas.

Where does the money come from?

You may be wondering; private money lenders are rich individuals who have money to spare. This, in fact, is a myth. Basically, private money lending involves pooling funds from the bunch of other individuals who are willing to loan you the money at a higher interest rate, so if you default on the loan, they will take possession of the property.

Hard Money Interest Rate:

Most hard money lenders will charge you anywhere from 10-15 percent interest rate. Also, you’ll be charged an origination fee that can vary anywhere from 3-5 percent. Now, you may be wondering, the interest rate and the fees for hard money loans are ridiculous – and you are right. The reason why the interest rate is so high is that hard money loans are meant for people who want to make a career out of real-estate investing. If you wanted to become an investor, you cannot do so with a conventional loan. When you go to the bank to get a loan for your investment property, they will turn you down. Even though you are a successful real-estate investor and may have several loans through the various banks, you won’t be able to get a loan through conventional means at an interest rate you want. It doesn’t matter how rich you are or how great your credit is, sometimes it can be nearly impossible to get a second, third or fourth loan through conventional means.

Putting some skin in the game:

So, you may be wondering it is time for me to become a real-estate investor. Well, not so fast, to get a hard-money loan, you will need to put down 10 to 20 percent down. This way, the investors know that you are a serious buyer and you mean business. Also, you are not likely to get a hard money loan if you don’t have any experience in the field. This is because the investor doesn’t want a rookie using their money, and thus you need to have some real-estate experience before you can get the loan.

Renovation costs:

Most conventional bank loans do not offer loans for renovation, which is often part of a house flipping project. That is, you purchase a rundown property and you renovate it to sell it at a higher profit. But, you won’t be able to get a loan through conventional means. This means that your only option to get a loan for renovation is through Private money lenders in Houston who can top up your existing loan for a home renovation. Also, a private money loan has less underwriting guidelines.