How should you go about financing real estate? Money is money after all, but there are different types of money. Whether you are a first-time real-estate investor or a long time player, what is the right source of money, and what’s the difference between soft money loans and Texas Hard Money Loans?
Hard money is secured, by hard assets that you can touch and feel, like real-estate. Your credit and income are a non-factor, which might sound too good to be true. Well, hard money is a bit more expensive, interest rates are usually above 10 percent, and loan terms usually entail a balloon payment after a few months.
Compared to hard money, everyone has experience with “soft money.” Soft money loan qualifications depend on “softer,” more mutable aspects pertaining to a borrower’s financial situation. Aspects such your credit score, DTI or whatever vague metric the bank might want to impose. These loans offer low-interest rates and usually don’t involve balloon payments.
Because soft money loans are less expensive, and don’t come with balloon payments, they might seem like the best option to finance real estate deals.
But things aren’t always as they appear.
If you want to get into real-estate to improve your financial situation, you might as well forget about going to the bank. If you have poor credit or a unique income situation, soft money is basically out of the question. Banks aren’t willing to secure their loans if a borrower’s finances are in the least bit unsteady.
Hard money is different because these loans are secured based on property values. If your finances are a bit off, but your deal is sound, a hard money provider will still hear you out.
Because it is easier to qualify for, hard money financing can be an ideal way for borrowers in the less than ideal financial situations to invest in real estate.
But hard money can also help veteran real-estate investors as well. Reams of paperwork are usually required to get an application though and bank bureaucracy can hold up loans for months on end.
For this reason, those who are serious about real-estate investment don’t turn to banks to regularly finance their deals. A serious real-estate investor can’t afford to miss out on an investment opportunity because the bank asks them for tax returns, circa 1987.
In contrast, hard money deals can close in days, as the approval process usually entails a quick appraisal. With hard money, the rapid approval process allows veteran real estate investors quickly to make competitive offers on the most lucrative investment properties.
So don’t be overwhelmed by hard money’s seemingly overwhelming initial expense.
If you have a less than an ideal financial situation, hard money can help you secure the purchase of your first property. If you’re a seasoned real estate pro and are looking for a way to make full cash offers on competitive properties, hard money remains your best bet.
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters and 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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