Investing in real estate can be a rewarding path to go down for people looking to build wealth. Real estate investment trusts (REITs) and real estate crowdfunding allow you to invest passively, but some investors may prefer to own property in its entirety. If you’re not comfortable with putting large sums of cash down to purchase real estate, a hard money loan may be the answer.
What Is a Hard Money Loan?
If you’ve ever taken out a loan, you know that lenders want proof you can repay what you’ve borrowed. They typically do this by looking at your credit score and take a deep dive into your debt-to-income ratio. Usually, if all of those factors check out and you have a solid history of borrowing responsibly there shouldn’t be any roadblocks.
However, traditional loans can be a painfully slow process. If you have negative items in your credit reports or an income that is difficult to verify to your lender’s satisfaction, the process takes even longer.
This is where a hard money loan comes in. Hard money loans are based on collateral. Lenders are less concerned about your ability to repay over time. If anything goes wrong, they simply take your collateral and sell it.
Hard money loans are typically short term, usually only one to five years long. You wouldn’t want to keep a hard money loan for any longer than five years because they typically come with much higher interest rates than traditional loans.
Pros of Using a Hard Money Loan
There are several good reasons why you should consider obtaining a hard money loan over a traditional mortgage loan.
To start, hard money loans are extremely convenient. Think about the time-consuming process of applying for a traditional loan. It can take months to close on a loan, which puts investors at risk of losing out on a particular investment property. With a hard money loan, it’s possible to secure a loan in a matter of weeks, or even days. This is important if you’re financing a time-sensitive project and can’t afford to miss good timing in the market.
Hard money loans also typically have flexible terms. Because private lenders offer hard money loans, it’s possible for investors to have more room for negotiation in the loan terms. Some investors are even able to tailor the repayment schedule to their needs or get certain fees reduced or eliminated during the underwriting process.
Another benefit to a hard money loan is the property itself usually serves as collateral for the loan. In some cases, you might be able to use personal assets, such as a retirement account or a residential property you own as collateral.
Cons of Using a Hard Money Loan
Hard money loans are a great option for investors but there are a few drawbacks that investors need to consider.
First, while hard money loans are convenient, investors typically pay a high price. This is because the interest rate can be up to 10 percentage points higher than a conventional loan. On top of that, origination fees, loan servicing fees, and closing costs are also likely to make the cost even higher.
Second, a hard money loan should really be for short-term funding purposes. As a result, these loans feature much shorter repayment terms than traditional mortgage loans. When you start to choose a hard money lender you want to have a clear idea of how soon the property will become profitable to ensure that you’ll be able to repay the loan in a timely manner.
If you’ve decided a hard money loan is the right move for you, here are five of the best options in Austin.
Stallion Funding is one of the most reputable hard money lenders in the Austin area. They’ve closed on over 350 loans and have funded over $250 million dollars worth of projects. They offer capital for projects ranging from single-family residences to multi-million dollar commercial and residential developments.
They pride themselves on having fast closings, transparent fees, and assurance that they’ll help you get the job done right. Stallion funding also tailors funding solutions to meet the specific needs of their borrowers and their profiles.
Little City Investments
Little City Investments is based out of Austin but has locations all across Texas. They have over a decade of experience providing Texas hard money loans for successful rehabs, refinances, purchases, and new construction projects. Not only are they local, but they know what it takes to win at Texas real estate. Some of their featured loans are house-flipping loans, cash-out refinance loans, and construction loans.
What sets Little City Investments apart from other lenders is their specialized knowledge and funding sources allows them to close loans in just five days. For investors that are working on time-sensitive projects, this can make a big difference.
Park Place Funding
At Park Place Funding, they understand how time-sensitive investment projects can be. Park Place Funding has a simple approval process. After you submit an application and proof of funds, they can approve you within 24 hours. Traditional lenders typically give real estate buyers around 80% of the purchase price, but Park Place Funding will provide 70%-75% of the after repair value of the property.
Although traditional lenders need 30-45 days to close, an investor can close in as little as seven days with Park Place Funding. They do require an appraisal, survey, and title policy to close, but their team is able to accomplish this in a fraction of the time it takes traditional lenders.
Loan Ranger Capital
Loan Ranger Capital is one of the few locally owned and operated direct hard money lenders in Texas. From fix-and-flips to ground-up construction, they have a loan for you. Their loan process is simple. They don’t delay your deal with appraisals, and they’ve removed all hoops and hidden fees so you can worry about what matters most.
Loan Ranger Capital also provides quick service to help you get your project started right away. If you decide to move forward with them on the deal, they will then order title insurance and create loan documents. The process is so simple that they’re typically able to have your loan funded in less than a week
CCG Capital makes asset-based loans for commercial and non-owner occupied residential real estate projects. Their investors enjoy a high-performance investment with historically high yields, managed by seasoned professionals. Each fund that they manage is a Regulation D Security filed in all 50 States.
As the direct lender, they are able to close on approved loan requests in as little as 10 business days after receiving all underwriting documents. Their loans typically range from $250K-$5M with 3- to 18-month terms depending on the project
It’s always recommended that any would-be property investor or house flipper connect with an experienced, local real estate agent as their first step. An experienced agent can help you find great investment opportunities, objectively evaluate different financing options, and uncover additional cost savings opportunities.
To help you find the best agent in Austin, Clever will match you with an experienced, local Partner Agent in your area. They offer the full services that you can get with a traditional real estate agent and schedule on-demand showings so you won’t miss out on a great opportunity.