Financial

Hard Money Loans: Everything You Need to Know Before Applying

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Whether you’re looking to purchase real-estate in Texas for a tax write off, for investment buy-back value, or to just purchase while the market is amicable, you should figure out how to finance your property. There are many ways in which to finance your new property, such as taking mortgages from financial institutions, seller financing, and less traditional options such as hard money loans.

In a traditional mortgage, the lender gives the money upfront in what is known as the principal. Mortgages are typically long term and every monthly payment you make goes towards the principal and interest, which is what the lender charges you for borrowing the funds. If you look into setting up a deal with the seller, there is no large financial institution and no large sum of money given up front. Instead, there is a written contract that specifies monthly payments, interest rates, and the consequences if any of the agreements are not met. This method can be faster and cheaper than a traditional mortgage in that there is no waiting for a bank and closing costs are typically lower. However, the terms may not be better than a regular mortgage option.

If these options are not what you are looking for, you may also want to look into hard money brokers in Texas. Unlike mortgages, hard money loans are given through private lenders who are not owned by large financial institutions. A hard money loan is best for short duration pay back and is not based on credit scores. One instance that this would be helpful would be in “house flipping” situations, where the turn around is often within one year to sell the property and pay back the loan. The higher cost of the loan is essentially offset because the length of time in which you would pay interest is minimal compared to traditional 10-30 year mortgages with lower rates. The high cost of a hard money loan is reflective of the fact that they are taking a higher risk on you since the selection criteria is less strenuous.

Hard money lenders tend not to check credit scores because they place more value in the collateral of the real estate itself. The need to worry about whether you can make the monthly payments is negated by the fact that they can resell the property for profit based on “after repair value” if payment agreements are not met.

Another advantage of this alternative loan is that there is less wait time for approval. Since they are private lenders who accept applications on a case by case basis, there are less people that will need to see the application for approval. You get the large principal up front without much waiting, meaning you can get your property faster. This fast cash can help in many situations other than buying property, such as avoiding foreclosure. The ability to avoid red tape is an attractive characteristic of this type of lending for many prospective buyers.

It is important to understand your financial situation before making a decision about lending options for a property you are looking into. While there are many reputable hard money brokers to consider, understand that the interest rates will likely be higher because the risk for everyone involved is higher. The higher interest rates make this type of loan sustainable for only a short amount of time, so it will be important to account for that in your plans. It will also be important to choose a lender that you trust so you know that you are getting the best deal possible and that you will receive exactly what your contract states.

With the right amount of research and vetting, you may find that a hard money lender is the right option for you for your plans.

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