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✔ In the real estate business, there are many ways to get started. Some are more effective than others, and realistically, it can be pretty challenging for us as individual investors to start dipping our toes into the market. Plots of land and properties are not easy to obtain or inexpensive in today’s economy.
✔ For those of us in Dallas, we are certainly familiar with that fact. In our area, there might be a lot of properties to purchase, but they are not necessarily all that accessible. That is why we are here today to discuss alternative options if you want to start buying real estate. Namely, we will discuss hard money lenders and private loans.
✔ Here in Dallas, there are a lot of possibilities and potential options to tap into.
✔ Stay tuned if you would like to learn more about how this process works, as well as what you can do to ensure that you are borrowing money safely and responsibly.
What is Hard Money Lending?
✔ The first thing that we will need to cover is simple: what is hard money lending in the first place? What sets them apart from traditional loans? The answer is simple, and it revolves around one thing: collateral. Hard money loans are based on the value of the collateral that is put up.
✔ Often, they are referred to as bridge loans. This is largely due to the fact that Dallas hard money lenders tend to provide loans to folks who are selling one home but trying to buy another one. Therefore, they can utilize the property that they are selling as collateral to help them purchase the new one.
✔ You can start to see how these are useful, especially for those of us in the area who are moving our families to a larger home. It can be difficult to make that decision, and if there are ways to make it easier for ourselves and everyone involved, why not do so? Thankfully, the process of getting a hard money loan is not overly complex.
How does it work?
✔ The next question to think about is this: how do these loans actually operate? Naturally, the first thing that you will need to sort out is your collateral. The property in question serves as security for the lender in case the borrower defaults on the loan.
✔ What comes next? You can read some about the process here: https://www.experian.com/blogs/ask-experian/how-do-hard-money-loans-work/. Once you establish what the collateral is, the next step can begin.
✔ Usually, this means that hard money lenders determine the loan amount based on the appraised value of the property. This is known as the loan-to-value (LTV) ratio. Typically, hard money lenders offer loans with LTV ratios ranging from 60% to 70%, though that can vary, of course.
✔ Something that you will want to keep in mind is that with these styles of loans, you will likely end up with a higher interest rate than some of the alternatives. Again, this will depend on the lender with which you are working. Thankfully, most of the options here in Dallas have reasonable interest rates, so it is not necessarily something you will need to worry about.
✔ Another thing to remember is that these are short-term loans. They usually have terms ranging from six months to two to five years. Of course, this is much shorter than traditional mortgage loans that typically have terms of fifteen to thirty years. The repayment period will be shorter, which is why we are mentioning this.
What is the Appeal?
✔ What you may be wondering now is why you would want to take out a loan like this in the first place. It is an understandable concern. You can read more on the topic on this page, but essentially, it’s about convenience and readiness. Allow us to explain.
✔ When you decide to get a hard money loan, the approval process as a whole tends to be very quick. This is especially compared to mortgages, which can take quite a long time to be sorted out and approved. The quick turnaround time is perhaps one of the greatest benefits of this style of loan, beyond the fact that it can help us get from one home to another without breaking the bank.
✔ The other big appeal is how flexible they are. You see, hard money loans are more flexible than traditional loans because they focus on the property’s value rather than the borrower’s creditworthiness or even income. This makes them accessible to individuals with poor credit or unstable income histories, which is a pretty significant benefit.
✔ Just remember that you should do your best not to borrow out of your means. If you are not confident that you can repay, then a loan may not be for you. That said, hard money loans are a great solution for a lot of families out there in Dallas!
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