Houston is renowned for its dynamic, fast-paced economy, making hard money loans a crucial component in securing success during time-sensitive deals. When it comes to navigating interest rates and fees for your hard money loan needs, a dependable Houston lender like Texas Funding offers a level of flexibility that many traditional banking options just cannot match.
The typical lending process can be lengthy and based on a stringent set of scales that doesn’t always factor in other vital factors. If your primary goal is a fast turnaround and access to quick capital for time-sensitive endeavors, then working with a hard money lender in Houston and understanding how they can impact your interest rates and fees is essential for maximizing your success.
Beyond the Buzzword: The True Purpose of Hard Money Loans
Some people may hear “hard money loans” and immediately think it is something that is complicated to understand. However, it is an incredibly simple tool for optimizing your quick capital gain. What separates a hard money loan from a typical, bank-issued loan is the information needed. While traditional banks analyze your credit and past tax returns to establish your level of financial credibility, a hard money lender will base credibility on available collateral or “hard assets”. This asset-based lending is typically used for fast turnaround projects in Houston markets such as:
- Real estate: Many real estate professionals will use hard money loans for fix-and-flip projects in Houston. These projects thrive in fast-paced environments and require the flexibility that asset-based lending offers.
- Commercial: This type of property is known for entering and exiting the real estate market extremely quickly. By using hard money loans, you can quickly acquire commercial properties or get aid for bridging any financial gaps.
- Business: It’s not uncommon for many businesses to use hard money loans or asset-based lending to cover big purchases, while using their property as collateral.
Hard money lending is incredibly versatile. At Texas Funding, we offer quick loans so that you can take advantage of exciting opportunities as they arise.
What Truly Influences Your Hard Money Rate
Interest rates are a huge factor in every type of loan and are something that fluctuates almost daily. What makes hard money loans unique is that the interest rate isn’t typically based just on the current market index, but instead it is a combination of factors.
The primary influence on your loan’s interest rate is asset-based risk. This is a combination of your specific collateral’s value, the type of property, and the liquidity’s effect on the interest rate. By doing this, our lenders establish the value your property holds, and based on those figures, an interest rate can be established.
Property type and location also play a role in determining your Houston hard money loan’s interest rate. For example, a single-family home in a quiet, safe Houston neighborhood is considered less risky than a large, sweeping commercial property or undeveloped, bare land outside of the city. The main reason for this is that the single-family home in the desirable neighborhood can be turned and sold quickly if need be, making it much more valuable collateral that requires a lower interest rate.
The speed at which an asset can be sold for cash is what reflects the liquidity of the collateral. A property that is in a busy area that will turn over once put on the market is more valuable than a rural piece of undeveloped land. In turn, the more valuable your property is, the lower the interest rate is because it is less risky to the lender.
Lastly, the lending market itself can also affect your asset-based loan’s payment structure. Even if the economy is in a low-risk state, that may create more competition and lower interest rates. In times of uncertainty, the market becomes inherently more high-risk, leading to increasing interest rates for all sorts of loans.
Other Fees in Your Hard Money Loan: The Full Price Tag
Even though the interest rate is the most eye-catching part of your hard money loan, there can also be various fees. By demystifying the separate fees, you can enter your money lending experience with full confidence. At Texas Funding, we believe in transparency and giving our Houston clients a clear understanding of what they will be paying monthly when they choose to enter an asset-based lending program. Some other basic, but sometimes overlooked, fees could include
- Origination fees: These fees are typically a one-time payment paid at closing. Sometimes, origination fees are also called “points”. Oftentimes, this amount covers processing fees and underwriting fees. Overall, it plays a critical role in the asset-based lending process and is determined by the total cost of your loan.
- Due diligence and closing costs: Most of the time, some amount of capital is required to verify the property and legally finish the hard money lending process. This fee typically goes to a third party and can include a wide variety of aspects. These could include appraisal fees, title and escrow fees, or legal fees for drafting documents. By paying these fees, your hard money loan will be more secure and clear-cut.
When you understand the full scope of where your money is going when you enter a hard money loan, you can have full confidence in your lender and your assets.
More Than Just a Number: Creating an Asset-Based Loan That is Tailored to You
Now that you have learned more about hard money lending and interest rate structures, identifying the parts of your project that need specifications can help take a good loan experience to an excellent one. One of the most valuable aspects of a hard money loan is the vast flexibility. Not only does a collateral-based loan give you the option to optimize your interest rates, but it can also allow you to tailor things like your loan terms, payment schedule, and flexibility.
Most hard money loans fall into two categories: long-term or short-term loans. Short-term loans are typically structured with 6-12-month-long pay periods. Oftentimes, shorter loan terms are paired with lower interest rates because of the decreased market risk for the lender. If your project is a quick, cut-and-dry project, a short loan structure is ideal for optimal payment schedules and lowest rates.
Long-term loans are normally anywhere from one to two years long. These payment structures are normally subjected to higher interest rates due to the heightened instability of your collateral throughout the year. However, if your project is potentially going to be affected by budget setbacks or missed deadlines, a longer loan term can protect you from extension fees or defaulting on your hard money loan.
Moving Forward: Securing the Right Asset-Based Loan for Your Houston Project
While navigating interest rates and fees within your Houston hard money loan might seem overwhelming, working with an expert lending team like Texas Funding takes away the guesswork. When you understand the full picture of your asset-based lending and the structure of your unique interest rates and payment terms, you can not only feel more confident moving forward, but you can also strive toward new heights in your ventures.
Contact Texas Funding today to learn more about hard money lending and interest rates for your Houston project!