Many Texas real estate investors often look for alternative financing sources that don’t include the local bank. One common term they’ve usually come across is “hard money” As a follow-up, they might ask themselves questions.
- What is hard money? How does it work?
- How do I find the best hard money lender in Texas?
- What questions do I need to answer before committing myself to a lender?
- What are the best deals for hard money loans?
- What documents do I need to qualify for hard money loans?
This article aims to answer these questions. Read ahead to find out the answers.
What is Hard Money Lending?
Hard money is a precise asset-based loan funding through which a borrower gets capital secured by a real estate parcel’s value. They’re short-term interest-only loans for investment-grade properties. These loans usually take about six months to an 18-month term. It’s money you borrow for a short time. They mainly accrue a 10% to 15% interest rate, which may turn off some borrowers.
So, when you’re getting this money, you’ll have to use and repay it quickly. People get in trouble when they don’t have the systems to manage the process. They spend more time with those loans than they need to. They call it “hard money” because the terms are more aggressive than they would be if it were long-term convention financing.
How do I find the best hard money lenders in Texas?
To find a lender, you could do a quick Google search for (Texas “hard money lenders”). You’ll find listicles of Texas hard money lenders written by bloggers and individual companies in your search results. It’ll provide you with a baseline in your contacting and evaluating process.
You could also join the local club meetings. Lenders usually take part in these meetings seeking to network with potential customers. If they’re not present, you could seek opinions from other real estate investors. Strive to leverage the existing available networks and make your choice on the recommendations.
After finishing up with your compilation of lenders, start contacting and evaluating them to find your most suitable lender that’ll fund your next deal.
What questions should I ask before committing myself to a lender?
Not all hard money lenders are equal. There are three fundamental questions you need to ask yourself, especially if you’re a new investor. These questions will ensure that you are with the right lender. They include:
- Is there a staff member that understands the construction process?
- What unnecessary fees should I avoid?
- What’s the turnaround time for processing a request?
1. Is there a staff member that understands the construction process?
It’s mutually beneficial for both the lender and the borrower to have a staff member that understands the construction process.
They’ll be able to evaluate your construction numbers and give you better feedback on what to or not consider. It’s a gatekeeping level to ensure both of you are on track and starting on the right foot.
2. What unnecessary fees should I avoid?
Typically, there are three main fees you shouldn’t be charged for:
- Attorney fees
- Processing fees
- Underwriting fees
These fees are pointless, and many lenders don’t charge them. You’ll have to ensure you steer clear of them as much as possible.
3. How long does it take to process my request?
Hard money works on draws. It’s where you do the work, then they inspect it and give you a portion of the allocated budget based on work done.
Preferably, it should be up to a 48-hour turnaround time. You’ll have to ensure that processing time is fast.
What documents do I need to qualify for hard money?
Every Texas hard money lender works differently. Some require more documentation than others. However, here are the essential documents you’ll need.
- Your LLC documents
- EIN and operation agreement for the entity
- Agreement of Sale
- Assignment Agreement
What are the best deals for hard money loans?
Hard money deals are not suitable for all circumstances. It’s a financial source where banks are out of the equation, and we require loans fast. Hard money is ideal for situations like:
- Construction loans
- Fix and flips
- When an investor has to act quickly
- When the borrower has credit issues
Hopefully, this article has answered the major questions you had about Texas hard money lenders. It has provided you with confidence and the best knowledge in finding your next real estate deal.
The 10 to 15% interest rate may seem scary, but in the long run, the benefits outweigh the extra cost by far.