Hard money loans are often referred to as a boon to the real estate investors! This is because when the conventional and traditional lending institutions turn down, hard money loans are the best escape resort to most investors.
Hard money loans come from the private money lenders or individuals who lend money based on the value of a collateral property.
There are various circumstances where conventional institutions turn their backs and that are where hard money lenders come into the picture.
Hard money loans are especially useful for people with poor credit or a bad lending history. If you’re tired of trying to get your loan proposal approved from various banks and have had no luck, hard money loans are definitely worth a try.
Worried about a poor credit score? This blog has effective tips on how you can use hard money loans in Texas when you have bad credit. Read on!
The first step towards getting commercial hard money loans approved when you’ve got a bad credit score is to believe that hard money loans are indeed a safe and secure resort, especially when conventional lending institutions have turned their backs on you.
Many investors have wrong notions about hard money loans and many are afraid of rather skeptical about procuring a loan from uncertified private money lenders.
So, the first step is to bust the myth about hard money loans. Procuring hard money loans from private money lender is as safe and secure as it is with any other traditional lending set up.
Sure, there are many scams happening around and they have happened in the past but that does not in any way mean that there are no genuine local lenders.
Real estate industry is probably one of the oldest industries and there were hundreds of private money lenders even before conventional lending institutions were set up!
The trick lies in finding the right private money lender for you and making the right decisions at the right. If you make the wrong decisions, you will surely end up in trouble.
Well, that’s true in all the industries, right? Making bad choices can land you in deep trouble even if you’re lending from a certified traditional lending institution.
It’s not rocket science or there is no you-must-just-get-lucky factor when choosing the right private money lender while raising hard money loans.
In the latter part of this blog, we’ve demystified effective tips on how to find the right kind of private money lender to finance your loan.
So, take the fear of being cheated off your shoulders as we’ll walk you through the pro tips on landing up with the right lender.
Only after your fears and inhibitions about procuring your loan from private money lenders have faded away, you can actually get on to the process of working on your bad credit so you can have a smooth run in procuring your hard money loan.
Tips for getting commercial hard money loans approved in Texas when you have a bad credit
Number 1 – Be absolutely thorough through the due diligence of your real estate project
One of the major things private money lenders are looking for when you approach them for a hard money loan is an attractive investment proposition.
The investment opportunity is a high priority and thus, you have to ensure that your real estate venture is a profitable one. If your lender believes that you’ve got a good enough proposition, great chances are he’ll find your loan.
But on the other hand, if he is not convinced about the success of your real estate venture, he will surely back out from lending your loan.
So, what’s the catch here? You must be able to convince your hard money lender about the viability and the profitability of your real estate venture.
It’s not sufficient if it’s you alone who thinks your venture is profitable. Private money lenders are looking for proof and if you want to process your loan, you’ve got to provide solid proof to your private money lenders.
Now, the question is ‘How to convince the private money lenders about the profitability of your real estate venture?
There are 2 easy steps to do this. The first step is for you to conduct due diligence of your real estate project in the first place.
Before convincing anybody else, you must be convinced yourself about the profitability of your venture. And to have that level of confidence, it’s very crucial for you to dig deep into the minor intricacies of your real estate project and be assured of good returns.
Once you’ve done that, you’ll build up an immense amount of confidence about the success of your real estate venture and that’ll surely show up on your face when you’re talking to your investors. Besides, you can always convince better if you strongly believe in the same idea yourself!
Also read about Questions You Need To Ask A Hard Money Lender
Once you’re through the first step, the second step begins. The second step is to hire a legal attorney who can vouch for the success of your real estate venture.
Having an expert professional who’s vouching for the success of your real estate venture by your side is sure going to add to your credibility and thus making it much easier for your private money lenders to believe in your prospect and fund your loan.
Thus, in order to convince your lender about the success of your real estate venture, conduct a deep due diligence on your project and hire an expert in the field who can agree with you.
Number 2 – Provide peace of mind to your private money lender
If you have a bad credit score and want private investors to fund your investment, you must convince them that you’re very serious about the success of your real estate project.
This can be demonstrated by showing the will to invest your own funds into the project from your personal savings.
If you are very serious about the success of your real estate project, you wouldn’t back off from investing your own funds, right?
If you’re able or even willing to do that, there are good chances your private investors will take your project seriously and will be willing to fund your investment.
Another great way of demonstrating your seriousness about the success of your real estate venture is by explaining a detailed exit strategy in case your things did not go the way you wanted them to.
This exit strategy must be inclusive of the plans you’ve got in order to pay up your monthly installments and also the final clearance amount when the time has come.
Having done this, you’ll win the confidence of private money investors and your chances of getting your investment funded will increase exponentially!
Number 3 – Explain the credit problems you have
It is wrong to say that private investors do not care about your credit history at all.
They do care about your lending history and they are curious than anyone to know the reasons behind your poor credit score, but also remember that they are a lot more understanding and in some way lenient as compared to the traditional underwriters.
If you’ve got a poor credit score due to an unexpected event which you hadn’t seen coming and weren’t prepared for, you must explain the situation to your private investors.
Misfortunes happen to everyone and if you can explain why such problems arose earlier and aren’t likely to rise again, you’ll be shown some leniency.
Thus, do not keep the reasons for yourself but try to communicate the reason behind your poor credit score after which you can go on to convince them about how you’re committed to clearing your dues on time now!
They are the top 3 tips on how you could finance commercial hard money loans in Texas with poor credit.
Such tips would go down the drain if you end up with the wrong private money lender. Here are best tips for finding the right kind of private money lenders to finance your deals. Read on!
Tips for finding the right private money lenders to fund your hard money loans for commercial real estate:
1) Check for their testimonials
Checking the testimonials of private money lenders is one of the best ways of knowing the real-life dealings of your lender.
You can get a peep into how your lender deals and treats his clients by looking at the customer testimonials. Feel no hitch in asking your lender a few contacts of his previous clients to whom you can talk to.
A genuine hard money lender for the commercial real estate will not step back from doing so.
2) Enquire about the lender in the neighborhood
The neighborhood of your lender would have closely seen the transactions of your private money lender and they’re the best ones to give you fair and an unbiased opinion.
Of course, the opinions of a couple of people who live in the neighborhood should not conclude anything for you but if the majority of the people in the neighborhood have negative opinions about the lender, you know that he’s not the right lender for you.
3) Is his lending network wide enough?
Most of the private money lenders have immense lending network spread across the state. This is also true for genuine money lenders who’re into the business from a quite a long time.
It can take you years, or even, decades to build a vast lending network but having a private money lender who’s got a wide lending network can many a time work to your advantage.
If you’ve got to finance another loan in some other part of the state, you already have a trusted referral and things get pretty easy for you.
4) Experience matters!
The number of years one has been into the work of lending does matter to a great extent. Private money lenders often also act as your legal advisors and are experts in providing timely valuable suggestions. Having a person whose experience in the industry of lending and real estate is huge by your side can often ease your decision-making process and will provide a peace of mind!
Analysing The Pros and Cons of Hard Money Loans
Hard Money Loan Pros
Choosing a hard money loan for a commercial real estate venture with the help of Private Capital Investors has many advantages. It has more than a traditional loan. Hard money financing offers two main benefits:
It’s simpler to get hard money loans.
Getting a commercial real estate loan is usually long and difficult. It involves careful review of the borrower’s and the property’s financial records. Traditional loan processes can take months to reach closing, and even then, there may be a long wait for funds. All of these delays can hurt an investor’s return on investment.
Hard money loans provide more adaptability.
Private commercial lenders typically offer hard money loans, which makes it easier for investors to negotiate good loan terms. Average finance vehicles offer little room for investors to negotiate. But with hard money financing, an investor may change some loan terms to better suit their needs.
Cons of hard money loans.
Hard money loans have many alluring benefits, but they aren’t always the best funding option. Before applying for these loans, investors should consider two essential traits.
Hard money loans are expensive.
There is no such thing as a flawless lending product. Hard money loans are pretty convenient, but their cost is also high. All that accessibility and flexibility come at a price. Hard money loan interest rates are much higher than those of traditional loans. Apart from interest, even average loan costs differ a lot. These costs include origination, service, and closing. They might vary a lot from standard Commercial Real Estate Loans.
The shorter loan terms of hard money loans.
Investors need funds fast, and this need determines how they use hard money finance. People often use hard money loans as bridge finance. Their payback terms are usually shorter than standard loans.
