In Texas, regulation and licensing of hard money lenders are accomplished through the Office of Consumer Credit Commission (OCCC) authorized under Chapter 342, TX Finance Code, as are all consumer loans that bear an interest rate higher than ten percent. Additional rules are in Chapter 7 of the TX Administrative Code.
Who Are Hard Money Lenders?
Hard money lenders can be a blessing and a curse when it comes to making a substantial financial decision. Hard money lenders generally make loans and investments that regular banks would avoid. For instance, an individual with poor credit may choose to seek out hard money lenders because they are more likely to take on their loan request.
The tradeoff lies in the fact that hard money lenders often charge higher interest rates; however, the terms are for a much shorter period, frequently 6-12 months. Therefore, a ten percent increase in the interest rate is not that substantial. For someone looking for a quick loan without much paperwork or credit checks, this can be a quick fix.
What most real estate investors look at is the availability of funds. When you need cash for a real estate auction or a buy, you cannot afford to wait for regular funding and all the paperwork that goes with it.
Hard money lenders do not usually check your credit score or debt-to-income percentage. Instead, they look at your ability and willingness to repay. Foreclosures and collections are ordinarily a better indicator.
The loan is analyzed based on collateral assets. Investors interested in refurbishing a real estate investment property to “fix and flip,” can get a loan based on the after-repair value (ARV), on a first lien basis. The lender can loan up to 100 percent of the ARV, but usually, it is 70-75 percent.
The lender ordinarily has an independent appraiser appraise the property and consider the repair plans to determine an ARV. This means the property you own or are buying will factor into the loan decision. An independent appraisal can also help the investor determine the ARV and how much they can afford to bid on a property at auction.
Although the collateral for the loan is the home or property you intend to repair, the lender does not want the property. They are looking for a quick return on their investment without the hassles of foreclosure and resale. This is often better for people who may have low credit scores or high debt-to-earnings ratios, but otherwise have a good financial reputation as real estate investors or contractors.
Regulation of Hard Money Lenders
Regulation for hard money lenders lies at the state level. Legitimate lenders have an OCCC license. In fact, to ensure the reputation of these hard money lenders, you should ask to see their OCCC license as part of your initial evaluation. When you are considering a loan from a hard money lender, you should thoroughly research the lender before making any decisions.
Although interest rates and loan amounts are set by the parties involved, hard money lenders are required to follow state regulations. These regulations routinely pertain to interest rates charged, fees, taxes and payment periods. However, when the borrower and the lender live in separate states, they are required to follow all laws regarding loans from both states.
You should check with the Better Business Bureau, the OCCC, and research the lender’s reputation. The OCCC periodically examines the lender’s account records and could order repayment of any errors found. Hard money lenders licensed to operate in TX are your best bet when considering an investment loan.
Red Door Funding – “Opening the Door to the Funds You Need!”
In TX, Red Door Funding is OCCC licensed and insured hard money lenders. We can open the door for you when it comes to financing an investment property in Houston. When you’re looking for funds for an investment property or have funds you want to invest through a reputable partner, consider Red Door Funding. Call (832) 539-1099.
You can apply online, here. Or, if you have more specific questions pertaining to real estate investing in the Houston area, our operation or investing with us, send an email to dwilliams@reddoorfunding.com.