Houston Hard Money Loans for Real Estate Investment

Hard money loans for real estate can be excellent tools to earn great returns on your investment. They are usually shorter term loans, such as 6-12 months, and are interest-only loans. Hard money lenders are not regulated like banks. Despite the name, the approval process is more inclusive and easier than banks, credit unions, or conventional lenders. Documentation and credit rating requirements are greatly reduced and closing times are significantly shorter - often in as little as 7-14 days. For a variety of reasons including higher risk and shorter terms, the rates and fees are higher than more traditional real estate loans.

Hard money loans are used in one of a few ways in most instances:

FLIPPING (Sell property to an end buyer):

• Fix and flip. Purchase, repair, and quickly sell the property.
• Purchase, no repairs, and sell. Quickly purchase and resell the property.
• Refinance, rehab, and resell. Acquire funds to repair a property already owned. Quickly resell.

BUY AND HOLD (Hold as a rental property)

• Purchase, repair, and refinance into a long-term product. Long term product could be a conventional loan or alternative product.
• Purchase, no repair, and refinance into a long-term product. Refinance and acquire funds to repair a property already owned.
• Refinance, repair, and refinance into a long-term product. Loan would be used to repair a previously owned property.

Hard Money Lenders will typically lend 65%-75% of the ARV. The ARV (After Repair Value) is the estimated value of the property AFTER the repairs that are planned have been made. A “Subject to repairs” appraisal is usually acquired to determine this value.

Hard money loans are usually closed at a title company. The title company will facilitate payment of all liens on the property and provide any surplus funds to the seller or to the owner (if refinancing).

The repair budget will be held by the lender and funded with repair draws. In most situations, the investor (borrower) can select the timing and size of these draw requests. Borrowers can negotiate terms with the contractor, but most contractors will expect some money to kick off the job. Borrowers must fund whatever is agreed with the contractor as hard money lenders will not provide the money to kick off the job.

Hard money lenders will reimburse borrowers for work completed after a draw request and inspections. There are inspection fees (usually $175-$250), but most hard money lenders and industry experts recommend newer investors taking more draws. While the borrower (investor) is primarily responsible, hard money lenders provide a “second set of eyes” to ensure contractors are only paid for work properly and fully completed. The inspection fee costs are usually money well spent as paying contractors for work not properly or fully completed is one of the largest risks for real estate investors.

You may currently be debating between requesting a loan from a hard money lender or a traditional bank. Before making the final decision, it’s important to understand how partnering with a hard money lender changes the process. When applying for a hard money loan, you’ll benefit from:

• Fast Approvals & Funding: Approval for a hard money loan can happen in just as little as one day, but usually under 48 hours! In a as quick as 7-10 days from submission of the necessary conditions and loan application, the approved loan can be funded. When applying for a loan from a bank, the approval process can take weeks, and funding can take 30 - 60 days. If you need to close a deal fast, a hard money loan could be right for you.

• Less Restrictive Requirements: In most instances, the bank’s lengthy approval process is paired with a long list of requirements that must be met, the most important being whether the borrower has good credit, significant assets (often which are expected to be deposited with the lender) and steady income. If the answers don’t align with the bank’s criteria, then the loan is usually not approved. Hard money lenders follow much less restrictive requirements that are easier to meet. While a borrower usually must have proven ability to pay and evidence of solid character, credit history doesn’t carry as much weight as the investment property or deal itself, and the potential profitability of the deal matters most. If a bank has denied your loan requests, then reach out to hard money lender like Catalyst Funding instead.

• A Strong Lending Partnership: By working with a hard money lender, you’re building a strong partnership with a lender that wants the project to turn a profit just like They’ll give honest feedback, voice concerns, and share advice about how to move forward. If you find success with the right hard money lender, then it’s likely you’ll partner with them in the future, creating a long-term relationship to support your real estate investments. The best lenders want to be your lender and trusted advisor for life, not just one deal with a limited chance of success.

To qualify for a hard money loan, the value of the property and the quality of the deal is closely evaluated. You must complete an application and the lender will provide a reasonable list of documents you must provide and sign. For flipping properties, this process is relatively fast and easy. If you are pursuing a buy and hold loan or long-term financing, the lender should ensure you are approved for your exit strategy as well. This process can be more rigorous as conventional loans or other long-term loans usually have unique or more complex requirements.

Borrowers must also have significant cash reserves on hand that will be used to fulfil monthly loan payments and additional holding costs. Greater cash reserves increase the chance for approval as lenders feel more confident the necessary payments will be made.

Interested in applying for a hard money loan? It’s easy to start the process and get preapproved. Simply fill out our online loan application. If you have any interest in a primary purchase or refinance, buy and hold investments, commercial or multi-family loans, there will be an additional application. We make it easy and there will be a path to complete the non-hard money application as soon as you complete the hard money application. We’ll reach out to you in 24 – 48 hours to provide a pre-qualification or request more information.

At Catalyst Funding, our preapproved clients also receive professional assistance estimating ARVs and one on-site evaluation of an investment property in addition to wholesale e-lists advertising new investment opportunities. Our team has done hundreds of investments and most of our LOs have invested in their own deals as well.