Beaumont-Texas Hard Money Loans
Real estate loans don’t always fall under the description of a conventional mortgage. With a mortgage deal, a borrower acquires a loan to purchase a home. The borrower then repays the loan at a predetermined annual percentage rate (APR). Not everyone, however, qualifies for a mortgage. Their financial background or reasons for borrowing make traditional mortgages out of their grasps. A hard money loan could be the preferred option for these borrowers in Beaumont, TX and elsewhere.
What is a Hard Money Loan?
A hard money loan differs from a traditional mortgage in one significant way: approval isn’t based on the borrower’s ability to repay. Instead, a determination derives from the value of the property.
Who Seeks a Hard Money Loan
Borrowers with different goals and backgrounds seek out a hard money loan. Their purposes might be atypical from the common reasons the average person wants to buy a home.
Investors interested in buying, renovating, and reselling a home at a profit often acquire hard money loans. Similarly, buyers may utilize a hard money loan as a “bridge loan” to expedite the purchase of property for resale purposes. Professionals involved in construction projects might find a hard money loan worthwhile.
Some people use hard money loans to own and live in the property. They don’t qualify for a mortgage, so they take advantage of hard money loan options. Generally, hard money loan approvals go mostly to investors as opposed to home buyers. We explain the reasons in the next section.
The Loan-To-Value (LTV) Requirement
One thing to understand about hard money loans is they do require something known as a Loan-To-Value (LTV) ratio payment. Essentially, this is a down payment on the loan, but the percentage is going to be much higher. A 20% down payment would be commonplace. Anyone interest in a $300,000 loan to purchase real estate in Beaumont, TX may need to put up $60,000 towards the acquisition of the property.
Hard money loans do open doors to investors who otherwise couldn’t procure a mortgage, but there are costs the lender must accept. Interest rates on hard money loans will be high, and fees could be added to the balance.
A Short-Term Loan
Hard money loans aren’t 15 or 30-year mortgages. Instead, these loans come with a rapid repayment term. Usually, the loan term runs about 12 months. Interestingly, the borrower may not be required to pay standard monthly installments on the loan. Interest-only payments could be at the core of the deal. The loan could also involve a balloon payment structure. That is, no payments are necessary until the end of the loan’s term.
These components aren’t the only ones that make hard money loans appealing to investors. Applications for the loans follow a streamlined process. Borrowers must meet requirements, but the overall application won’t come with many complexities.
Hard Money Loans Vs. Bank Mortgages
Besides the quick loan approval time, short repayment durations, and balloon payment deals, other differences exist between a hard money loan and a traditional mortgage. Credit checks don’t factor as much with a hard money loan as they do with a standard mortgage.
The lenders also look closely at the value of the property intended for purchase. While credit and income might not factor heavily in the approval process for a hard money loan, the collateral at the core of the loan is examined closely.
Be mindful that different rules exist for private individuals than for commercial businesses. Private individuals often use hard money loans to overcome obstacles with approvals for a mortgage. Per Dodd-Frank regulations and rules, lenders must qualify the private individual’s ability to repay the loan. Owner-occupied consumer loans, however, reflect a small number of such hard money loans.